Spouse Awarded Proportional Share of Account Value Increase

Bar Graph showing increase, superimposed on world map.

It is unusual for the Colorado Court of Appeals to issue two different decisions in the same case, in the same year, on completely different issues. But that’s what happened to the Coplins. This new case concerns how to handle an account value increase, while back in March 2020, the Court of Appeals denied the husband’s appeal of the maintenance award he was ordered to pay to his wife at dissolution. We wrote a blog post about that maintenance appeal several months ago.

Now, in what we should probably call Coplin II, the Court of Appeals has issued a ruling on a post-decree appeal by Wife, on a completely unrelated issue. It’s an issue that most family law attorneys have litigated at some point, owing to the lack of appellate authority to clarify the matter – when an account is divided between spouses, what happens to any increases or decreases in the value of that account between the date of the divorce and the date of division? Should the account value increase also be divided between spouses?

In Coplin,1In re: Marriage of Coplin (Colo.App. 2020) (Unpublished Decision)., to equalize the division of the marital estate the wife was awarded about $565.7K from the husband’s Wayne State retirement account, and the husband was awarded the other $234.6K of the balance. Both amounts were expressed in dollar terms.

The parties were to cooperate to effect the division of that account, using a QDRO (Qualified Domestic Relations Order), but for some unexplained reason, the distribution was delayed by almost a full year. Although the account value upon division was not stated, presumably it was higher, as the wife filed a post-decree motion seeking a 70.68% share of the account value increase. She reasoned that her $565.7K share of the account comprised 70.68% of the value at the time of dissolution.

The trial court denied the wife’s motion, finding that the account was actually awarded to the husband, and the wife was only awarded a fixed dollar amount. Therefore, as account holder, the husband was entitled to the account value increase between the divorce hearing and the formal division of the account. The wife appealed.

The Court of Appeals reversed, on the grounds that the trial court did not award the retirement account to the husband, but merely the $234.6K remaining after paying the wife her share. And with that finding, the Court could then do what was right as to the account value increase, without being locked in by specific language from the holding. And that meant sharing the enhancement.

Divide the account value increase over time.

The appellate court first noted the obvious – had the retirement account been divided immediately at dissolution, the wife would have undeniably have been entitled to the increase she was seeking: “Had the $565,662.60 been transferred to wife at the time of permanent orders, any change in value would be hers.” Coplin.2In re: Marriage of Coplin, ¶ 10 (Colo.App. 2020) (Unpublished Decision).

The Court then analogized to the policy behind the “time rule” formula used to divide defined benefit pension plans, under which the nonemployee spouse shares in whatever increased benefits may accrue in the delay between being awarded her share, and actually receiving it, and concluded:

“Given that the reason for delaying the distribution of the Wayne State account was not given, and neither party was shown to be at fault for the delay, the principle of sharing the risk should apply.”

Coplin.3In re: Marriage of Coplin, ¶ 12 (Colo.App. 2020) (Unpublished Decision).

The matter was remanded to the trial court to order that the wife receive 70.68% of any increase, or decrease, in the value of the funds awarded to her between the date of the award and the actual division.

The takeaway? As indicated, this was clearly the right result. While a property equalization payment of cash is just that – cash, and not subject to any increases or decreases, when an account is divided between the parties, there is no logical or financial reason for either spouse to hog the gains, or bear the risk of loss.

Agreement Should Address Gains or Losses

To try to prevent this very dispute from arising, at Graham.Law we typically include the following language in our separation agreements, which result in the same outcome as in Coplin II:

Changes in Value. An award of an asset includes allocation of any increases or decreases in its value due to market forces. If a specific account is divided between the spouses with each being awarded a dollar amount, they are allocated, proportional to their shares of such account, any increases or decreases in the value of such account due to market forces through the date of division.

Account Increase Matters When Account Divided with Dollar Amounts

Finally, note that most of the time in a dissolution, to prevent the division from being a laborious task for all concerned, when possible attorneys typically divide assets in such a way that each spouse receives entire assets – a husband may receive two 401(k) accounts, three bank accounts, and his vehicle, while the wife receives the house, an IRA, her bank accounts, and two cars.

Since the numbers rarely balance out so neatly without adjustment, one spouse typically ends up owing the other spouse an “equalization payment” to ensure an equal division, although as we discuss in this blog post, the division does not necessarily have to be mathematically equal. The issue of allocating increases or decreases in value only arises when the equalizer is not paid in cash, but is instead some share of one of the couple’s accounts divided between the parties.

And also note that when an account is divided equally, the issue of allocating an account value increase also does not arise – if each spouse receives 50% of a particular account, then by definition each will receive 50% as of the date of the division as well (with the limited exception that if one spouse, after divorce, continued to make contributions into the account, as with a company retirement plan, that employee spouse receives the sole benefit of those post-divorce investments, and only the increase/decrease due to market forces is divided.

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