Denver Divorce Attorney Blog

As indicated in prior blog postings, one of the major topics in a Colorado divorce case can be the division of marital property. Property can come in all shapes and sizes, and is not limited to cars, houses, and retirement accounts. Every so often, a divorce case will come along in which one, or both parties, owns a business. Just like any other piece of property, that business may have a marital component to it, and a cognizable value.

One of the first things that comes out of most people's mouths when discussing a business with the Denver divorce attorneys at Plog & Stein is the notion that the value of a business is essentially calculated by looking at assets minus liabilities, and nothing more. The other thing that seemingly comes out of most people's mouths is the idea that only a business with inventory or significant property, such as a car dealership or a store, has any real value. Both common notions are wrong when it comes to property division in a divorce.

There are many types of businesses one might have, or fight over. We have seen people with liquor stores, restaurants, car dealerships, medical practices, legal practices, and more. A business does not have to have inventory and property to have value. A business does not have to sell something. A single attorney or accountant sitting alone is an office can constitute a business with marital value. Service industry businesses are businesses, too.

Once your divorce attorney determines the existence of a business, you will need to have discussions regarding figuring out the marital components to the business. The business may have been owned prior to marriage. If so, as with other property, there must be a determination as to whether there has been an increase in value during the marriage, to be divided as part of the property division. There may also be partners or other shareholders, whom will also need to be factored in. Once it is determined that there is likely a marital componenet, the next step will be figuring out a value. The way this is normally done is through the hiring of a business valuator.

Continue reading "Businesses, Property Division, And Your Denver Area Divorce " »

The law firm of Plog & Stein, P.C. practices solely family law in the Denver, Colorado area. As a divorce attorney in Denver, I handle all aspects of such cases, including the division of marital property. Though some have been depleted, or gone up and down and up and down over the last 3 years, many people still have retirement accounts that will need to be divided as part of the divorce process. This posting will focus on the division of three types of retirement plans: IRA's, 401K's, and pensions.

Though the Denver divorce lawyers at Plog & Stein do not give tax advice, we do know a little bit about the subject as relates to divorce. Pursuant to the IRS tax code, transfers of property indicent to a divorce are generally not considered a taxable event. However, there are certain procedures that generally go along with the division of the above stated retirement accounts that are designed to ensure that the division does not become taxable.

IRA's, or individual retirement accounts, are retirement accounts given certain tax status depending upon when funds are pulled out. If funds are pulled out before a certain retirement age, there may be tax consequences and penalties. In a divorce case, the marital portion of an IRA will need to be divided. If the plan holder just pulls out funds to pay his or her spouse out, he or she will be taxed and potentially penalized for the withdrawal. As such, the proper way for an IRA to be divided as part of a divorce is for the recipient to have the funds transferred or rolled over into another IRA or similar qualifying account set up for him or her. In this instance, the original plan holder is not taxed. Once the recipient receives his or her funds, he or she is free to do with them as he or she choose. If the recipient elects to cash out his or her funds, then a tax consequence and potential penalty may ensue.

401K's are another type of retirement account often owned by parties to a divorce. A 401K is what is technically called a "defined contribution plan." 401K's are similar to IRA's in that they are a lump sum account, with a cognizable value. As with IRA's, when dividing up a 401K as part of a divorce, funds cannot just be withdrawn to pay the other spouse. Rather, 401K's are generally divided through what is called a Qualified Domestic Relations Order, or QDRO. A QDRO is a specific order, ultimately signed off on by the court, instructing the plan or plan administrator to divide the 401K in a specific manner. Most plans have specific language that is required under the terms of the plan. The division of the 401K through a QDRO prevents the original plan holder from incurring tax or penalty consequences, which can be up to 40% of the withdrawal. The recipient of funds through the QDRO transfer can then elect to have his or her share put into a similar type of account or to cash them out via the transfer. Cashing out will lead to the tax/penalty consequence for the recipient on his or her share.

Most Denver family law attorneys dealing with property division do not actually draft QDRO's. Why? Because they are very technicality laden and, frankly, most of us don't know how. As such, in most cases, the actual drafting if farmed out to an expert QDRO drafter, whether an attorney or an accountant. The cost of the QDRO can range from roughly $400 to $800 depending on who is used, and is generally going to be split equally between the parties.

Continue reading "DIVORCE IN DENVER: DIVIDING RETIREMENT PLANS " »

Plog & Stein, P.C. is a Denver area family law firm whose practice has been solely dedicated to family law for roughly a decade. A major aspect of our caseload over the years has been divorce. A major aspect of our divorce practice over the years has related to division of marital property. A major facet of marital property division over the years has been disposition of the marital home.

Back in the late 1990's and into the early mid-2000's, the major asset held by a couple in a divorce case was their home. Back then, people actually fought over homes in terms of who would keep the home and how much the person leaving it was going to get. Now, as then, there are essentially three options for disposition of a home in a divorce case:

1. The wife keeps the home.
2. The husband keeps the home.
3. The home is sold.

Again, these three options are the same today. However, in what I will call the "olden days," if husband or wife was going to keep the home, generally the parties would have to agree upon the value or an expert home appraiser would be hired to provide a value. Back then, values were increasing and everyone wanted the house. Because values were increasing, the general outcome would be one party agreeing to keep the home and refinance it into his or her individual name. As part of the refinancing process, he or she would take out essentially half of the equity to be given to the other party. People gladly took on the debt alone, as there would be a pay day at the end based on increasing values. If neither party wanted the house, it was sold and the parties generally had equity to split.

One result of the increasing home values and so much equity accruing was that people would pull money out of their asset or investment via a second, or sometimes third, mortgage. People believed the good times would never end, and their homes almost became like personal banks from which to draw or borrow funds. Why not, the value was just going up?

The olden days are gone. As Denver area divorce attorneys, we have seen an alarming trend over the last 3 to 4 years. As we all know, home values have decreased significantly. In some areas of town, homes have decreased 25 - 30%, or more. Fortunately, we are not in Las Vegas or Phoenix, where values have dropped 50% or more. As a result, and factoring in the drain of equity via second and third mortgages, probably 9 out of 10 divorce clients come to us with no equity in their home, or so little equity that the house will be upside down after factoring in realtor fees if sold.

As a result of the decreased home values, it seems as though no one wants the home. If they do, they have a much more difficult time refinancing solely into their individual names. In the olden days, when credit markets had not dried up and subprime loans were easier to get than a cold, people could refinance a home in 60 to 90 days, and divorce orders often reflected such. Today, if someone decides he or she will keep the home, some metro area judges have even been known to give people up to 3 years to refinance. For those lucky enough to have equity to divide, the party leaving the home may have to be resolved to waiting some time before his or her equity can be pulled out via a refinance.

Of course having to leave your name on the mortgage presents its own set of concerns. What if the spouse staying in the home defaults on the loan? The mortgage company will certainly come after both parties. Generally parties will agree, or courts will order, that the home be immediately sold in the event of a missed mortgage payment; this poses another challenge to our clients.

Let's assume that the parties agree, or the court orders, that the house will be sold. For the roughly 9 out of 10 families who are upside down, a sale will mean digging into their pockets or drawing from another asset to come to the table with money. Sometimes this can be tens of thousands of dollars. The reality is that the average family does not have that kind of money. Thus, reality further sets in, leaving them in the position of having essentially 2 options: short sale or foreclosure. I will state that prior to 2007, our attorneys had never heard the term "short sale." Today, it is commonplace. With no one wanting the marital home and no one having the funds to bring to the closing table, the reality is that short sale or foreclosure are now common resolutions to disposition of the marital home.

If one party wants to foreclose and the other does not, bankruptcy may be just around the corner. We sometimes see bankruptcies filed while the divorce case is pending. The insolvent party generally knows to do this before the court enters orders regarding the home. Some people get out of their court ordered or agreed upon orders regarding the home, after the fact, via Chapter 13, which can provide post divorce protections that Chapter 7 cannot. Thus, someone may have his or her debt absolved while the other is left holding the bag.

The primary thing that we attorneys can do today, besides remembering the olden days, is to make sure that we help our clients arrive at appropriate agreements, covering all the angles:

1. Providing your client who is keeping the home ample time, at least 1 year, to refinance prior to a forced sale.

2. Providing protective language to our clients not keeping the home, including insisting on a set time to refinance and insisting on language regarding sale in the event of a missed mortgage payment.

3. If our client is the one not keeping the home, we will generally insist on language indicating that the party keeping the home shall be solely responsible for any debt related to the home and shall indemnify and hold our client harmless.

4. In the event of a sale where there is no equity, we will insist on specific language indicating that any liabilities or money owed, including that to be brought to the closing table, will be split (generally equally). We will also insist on specific language as to the house being put on the market expeditiously and kept on the market, in sellable condition, until sold.

5. Sadly, in some cases, the parties actually agree that the home will go into foreclosure and that neither will be responsible for the debt, as they are both filing for bankruptcy.

At Plog & Stein, we hope that the good old days come back to Denver and that people are able to view their homes as an asset worth fighting over. Today, it seems people are left fighting over how to split a negative. Our attorneys can help you resolve what to do with your home in the divorce case, whether it is upside down or right side up. The key is specificity in any agreement or order.

When dealing with the division of property in a Colorado divorce case, the first step is identifying what property is marital and what is not. There are many misconceptions among people in a divorce case as to what is to be divided, how it is generally divided, and what is fair or not fair.

The division of property in a Colorado divorce case is governed by C.R.S. 14-10-113, which deals specifically with property. Pursuant to statute, Colorado is an "equitable division" state. What this means is that unlike some states, where there is an automatic 50/50 division of property, our divorce judges have discretion in terms of how to allocate property. That being said, the general rule of thumb we attorneys go by is that most divorce courts will divided property more or less equally.

Perhaps the largest area of confusion is "what is marital property?" Marital property in its purest form is property acquired during the course of the marriage. As such, whatever you brought into the marriage is yours and vice versa. However, statute also makes provisions for increases in value to separate property. Let's say for argument sake that a woman comes into a marriage with a 401K worth $100K and that during the course of the marriage it increases in value to $200K. The $100K increase in value to the 401K during the course of the marriage would be deemed marital and subject to division. Thus, each party would, in theory, be awarded $50K of the increase at the time of divorce.

Another common issue that comes up is separate property and the titling thereof. Again, pursuant to statute, when separate property is "co-mingled," it takes on the nature of "marital property" and could be subject to division. A common example in which co-mingling occurs is with bank accounts. Let's say a man enters a marriage with nothing but receives a $100K inheritance 5 years into his 10 year marriage. Let's say he puts that money in a separate account titled solely in his name. Let's also say, going back to the previous paragraph, that the money does not increase in value. The $100K would remain his separate property at the time of the divorce. However, let's say he takes that $100K and puts it into a joint bank account with his wife, where it sits for the next 5 years. By titling that money jointly he has made the property, in theory, "marital property" subject to division. Though the court can look at all facts and circumstances, there is a good likelihood that the court will call the $100K marital property and divide it.

When going into your divorce, you should know these basics of property for purposes of arriving at settlement or assessing what is worth fighting for in court and what is not. Though everyone hopes and believes their marriage will last, the general saying is that only 50% do. As such, people should plan ahead of time in terms of what they do with their separate property, how they title it, etc. Headaches down the road can be avoided, and your divorce can be much simpler and less costly. Just some food for thought.