Retirement is Both Income & Property at Divorce

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Retirement Must Be Divided As Property In a Colorado Divorce

Retirement is property, and if earned during the marriage, the pension is part of the marital estate to be divided upon dissolution of marriage per C.R.S. 14-10-113. It’s easy to conceptualize in the case of IRAs, 401(k)s and other defined contribution pensions which are accounts which have an actual, ascertainable value at the time of divorce.

defined benefit pension, under which the employer pays the retiree a monthly payment, typically based upon years of service and pay at the time of retirement, is also divisible. Think of the traditional pension plans employers used to offer in the days before 401(k)s, as well as of government pensions, such as FERS, PERA, or a military retirement.

So far, so good. But there’s a twist.

Retirement Benefits Count As Income

Colorado law defines retirement benefits as income. For purposes of child support, all retirement benefits received count as income. C.R.S. 14-10-115(5)(a)(I)(H). However, for purposes of maintenance (alimony) only, the definition of income excludes benefits from a retirement account which have already been divided. “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)

Does that mean the retirement benefits are no longer property, just income? No – the same flow of income from a defined benefit pension is both income, for purposes of determining support and maintenance, and it is property, to be divided as part of the marital estate in a divorce. At the same time.

Retirement Benefits Are Both Income & Property

For some reason, this concept of retirement benefits counting as both property and as income, simultaneously, is a difficult concept to grasp, perhaps because it appears to be double-dipping. But as property is divided before maintenance is considered, it’s not really double-dipping, as only the shares of retirement actually received by each spouse will count as income.

And even judges can have difficulties. In a brand-new unpublished decision, the Colorado Court of Appeals reminded us that retirement benefits in pay status count as both income, and as property to be divided. Davis.1In re: Marriage of Davis (Colo.App. 2020) (Unpublished decision).

In Davis, the husband was receiving monthly retirement benefits which were earned during the marriage. Over the wife’s objection, the trial court treated the benefits as income for purposes of calculating maintenance, rather than as property to be divided. So instead of receiving half of the marital share of the retirements as property, the wife received a lesser amount as alimony.

The Court of Appeals reversed: “The fact that husband was receiving retirement benefits at the time of the permanent orders hearing does not render the benefits income as opposed to divisible marital property.” Davis.2In re: Marriage of Davis (Colo.App. 2020), ¶ 9 (Unpublished decision).

The basis of the trial court’s ruling was that because the retirement benefits were defined as income, they could not also be property. The appellate court rejected this reasoning:

“True, the maintenance statute defines “gross income” to include “pension payments and retirement benefits actually received that have not previously been divided as property in this action.” But that statute does not direct the court to treat retirement benefits as income rather than marital property; instead, it provides that certain retirement benefits should not constitute both income and marital property.”

Davis.3In re: Marriage of Davis (Colo.App. 2020), ¶ 10 (Unpublished decision).

The takeaway? This is yet another example of the problems that arise when trial courts don’t divide property first, then determine maintenance – as required. Had the husband’s pension benefits first been divided, then the trial judge could properly determine maintenance based upon each spouse’s financial resources, including their shares of the pensions.

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