Retirement Benefits Can Count as Income for Alimony Determinations
Divorcing Coloradans may be surprised to learn that some retirement benefits can count as income for alimony determination. in Colorado, alimony is technically called spousal maintenance.
This article breaks down when and what kind of retirement benefits can count as income for alimony determinations.
Use our Colorado alimony calculator to determine what your spousal maintenance may be following divorce. Our free calculator bases its prediction using the most up-to-date state alimony equation and your unique circumstances, such as retirement benefits.
When Retirement Benefits Can Count as Income for Alimony
Your retirement accounts are probably on your mind if you are thinking about or in the process of getting a divorce. While you may be wondering how much you stand to lose or receive depending on your circumstances, you should be aware that your retirement benefits could count as income to help the court establish spousal maintenance.
Colorado Law on Retirement Benefits and Alimony
Colorado courts look to each spouse’s gross income among other factors to set a maintenance award. The Colorado Uniform Dissolution of Marriage Act outlines about two dozen different types of income that can count toward a spouse’s gross income, including retirement benefits:
Pension payments and retirement benefits actually received that have not previously been divided as property in this action. C.R.S. § 14-10-114 (8)(c)(I)(H)
Once a retirement account is divided as property it cannot also be counted as income. R&H family law attorneys say this is to prevent so-called double-dipping.
Common types of retirement benefits include 401(k)s, IRAs, pension plans, and military pensions.
Let’s look at a couple of frequent divorce situations where retirement benefits may or may not be considered by the court to help it determine spousal maintenance.
The Divorcing Couple Not of Retirement Age
Generally, retirement money gained after a couple is married is considered marital property, and it will be subject to Colorado’s equitable division standards. So, for spouses who are not drawing retirement benefits yet, the accounts will be divided as property in an equitable way.
Now, courts are allowed to take into account other factors when it considers awarding maintenance. One such factor is how marital property is distributed, including retirement benefits.
The distribution of marital property, including whether additional property may be awarded to reduce or alleviate the need for maintenance. C.R.S. § 14-10-114 (3)(c)(IV)
The Divorcing Couple Is of Retirement Age
Older couples who are retired or could retire face a more complex divorce. With that in mind, let’s begin with the simplest situation.
If you already receive retirement benefits, you’ll have to count that money as income. (See, that was pretty simple.)
But what about the spouse who will receive an equitable portion of the retirement accounts? Will these funds count as income, or will they be viewed as just marital property? The answer is not as easy as you might expect. In fact, the answer comes down to the divorce timeline.
Let’s consider this scenario:
Gladys and her husband Jim are divorcing. Gladys, who is old enough to retire, still works. Gladys expects to receive her fair share of the retirement income in the divorce, and when the divorce is finalized, she will retire.
Will the court consider the retirement funds Gladys receives as income or property?
Generally speaking, family law courts do not look too far into the future. Instead, judges consider what is happening in the present moment.
So in the above scenario, Gladys is working and not receiving any retirement benefits at the time of the divorce proceedings. So in that case, the court would likely hold that because Gladys is not yet benefitting from the retirement funds, it will count her portion of the retirement funds as property – not income.
Here’s another scenario:
Let’s say the only thing holding Gladys back from retiring is the pending divorce, and she plans to quit her job and take advantage of the retirement funds as soon as the divorce decree is signed.
What will the court do with this information?
The court could take this bit of information into consideration when it decides spousal maintenance, but that isn’t required of the court. After all, at the moment, Gladys is not getting money from the accounts.
Now, with that said, non-contractual spousal maintenance is modifiable. So when Gladys’ circumstances change – that is, when she begins to receive retirement income – her ex-spouse can file a motion to modify alimony payments.
The Takeaway for Older Couples Considering Divorce
Divorcing retired couples face different financial implications than their younger counterparts. The court is more likely to award lifetime spousal maintenance in marriages that lasted more than 20 years or if one of the spouses cannot support themselves.
Because this law is so complex, we strongly suggest you consult a family law attorney to discuss your unique circumstances.
Learn More About Retirement Income and Alimony
Our Family Law Team can help you understand how your retirement income could affect how much you pay or receive in spousal maintenance. Call 303-688-0944 to begin your free case assessment.