401k/ Retirement Accounts

Let’s discuss what happens with a retirement account or a 401K account and how that may be involved in your divorce or legal separation or even in a post-decree matter. A post-decree matter means that you’ve already gone to court, you have had a judge enter a decree or a legal separation or a decree of dissolution of marriage, and in that decree of dissolution of marriage, one of the parties or both of the parties had IRAs and retirement accounts or a 401K that had to be divided. In a post-decree case, most often what we see is that somebody has not done what they’re supposed to do and has not followed the Orders of the Court. As an example, let’s say that the IRA accounts were to be divided 50/50 in the divorce; the husband had a $200,000 IRA account and he was supposed to give wife half or $100,000 as part of the 50/50 agreement. If the party did not follow the Orders of the Court and did not give the ordered share to the ex-wife, the remedy would be to go back to court to Enforce the Orders of the Court. Thus, this is a post-decree issue.

In the typical divorce case where there are 401K or retirement accounts, the court will divide those accounts down the middle. That’s pretty much what you can expect. Despite the fact that there is no law that says that the court has to divide everything 50/50, generally speaking, a marriage of any kind of length, 4 to 6 years, or longer, the court is going to take into account who’s contributed to the 401K and whether or not that was a contribution made over the course of the marriage. If the 401k or retirement account(s) were begun prior to the marriage, the court will consider the value of the account(s) at the time of the marriage and will calculate the division of these assets accordingly.

Avoiding a 10 percent tax penalty while rolling a spouse’s retirement account directly to an IRA is important to address and can be achieved when relying on an experienced attorney familiar with these issues. When the assets are allocated under the Qualified Domestic Relations Order or QDRO, a one-time opportunity for parties under the age of
59 ½ to withdraw money from their ex’s 401(k) or 403(b) without owing the normal 10% tax penalty exits.
So if you’ll be receiving your spouse’s retirement account and will need to tap it to pay for some unavoidable divorce expenses, you may want to make the withdrawal rather than doing a rollover. Otherwise, if you roll the money into an IRA then need to pull some out for divorce costs, you’ll be subject to the standard 10% early-withdrawal penalty if you’re under 59 1/2.

For those clients over the age of 50, who will need to live on savings for 20-30 years in retirement, it is recommended to take the time to assess their current and future cash flow to determine how much will be needed to live on in retirement. For these clients, we often recommend that an expert CPA be consulted to properly pave the road for a successful financial future.

Contact Shayne Law if you have any questions.

Financial Experts

In many family law cases, we encounter the issue of financial experts, particularly where the parties have been married for a substantial period of time. They’ve acquired a lot of assets or property. They have a lot of accounts, or maybe where one of the parties has been a self employed business entrepreneur and has developed his or her own business. There’s different kinds of financial experts in many of these cases. I want to talk to you a little bit about that. When folks have a home and they need to determine what the value of that home is in their divorce, they usually need a real estate appraiser to do that.

I had one case where the parties had an extensive art collection from all over the world and they needed someone to give them a value of their art. Another kind of expert we use often in these cases is called a forensic CPA or a forensic accountant. These kinds of experts are familiar with the tax code, they’re familiar with how to calculate present value for the determination of division of property, such as retirement accounts and pension accounts. They can prepare what they call marital spreadsheets which will be a document in a spreadsheet like an Excel spreadsheet that will state what the parties own and what all of their accounts are including bank and retirement accounts and what their debts are, and to determine what the best way would be to divide the marital estate. Experts are extremely valuable in certain family law cases, and I urge you to talk to your lawyer about whether you need those kinds of experts or not.

Contact Shayne Law if you have any questions.

Survivor Benefits In Divorce

Let’s discuss a big issue that usually comes up in marriages that have been in progress for five, 10 years or more, and that is the issue that deals with survivor benefits. What kind of survivor benefits, and how do those come into play in a property division situation? Survivor benefits mean that the parties, either one or both parties, have a pension retirement account or a military retirement. In the typical example of a military retirement, the military member has served 20 plus years, and at the end of a military career, the military member has to make an election as to whether or not he or she is going to accept survivor benefits as part of the retirement. There’s a cost associated with that.

Let’s assume you have a 20-year marriage and over the entire course of the 20 years the husband served active duty in the Air Force. Now he’s retired and the parties are going through a divorce. Survivor benefit would say that the parties have elected to name the wife as the survivor in the event that the former military member pre-deceases the former spouse. This is like a life insurance policy that protects the former spouse and ensures that the former spouse is going to receive a military retiree income if the military member dies before the former spouse.

Another way to address this is through specific retirement plans or pension plans that have a survivor benefit component to it. It is always a good idea to check with a lawyer to review those plans when you’re going through a divorce to make sure that if your spouse has had a pension and retirement account, and something happens to your spouse, that you’re going to get your share long after your spouse passes away.

Lastly, I want to talk about life insurance which is a very important issue in almost all family law cases, because if you have children, most courts are going to say that you need to name the children as beneficiaries to a life insurance policy. If you have a pension and retirement account, or even if you’ve done a military retirement that you can still have life insurance when SBP has been waived, survivor benefits have been waived so that the former spouse is protected in the event that the spouse who’s had the retirement account passes away.

Keep in mind that in Colorado a military retirement, a pension, or a retirement account, is treated as property. It doesn’t matter to a judge that one party or the other had the pension or retirement account. What the court is going to look at is the law in Colorado and say, was that pension, retirement account, or military retirement, was that acquired during the course of the marriage, and if so, what is the value of the marital share of that pension and retirement account? SBP, survivor benefits, are very important when you are discussing how those moneys should divided in any kind of a divorce or legal separation. You want to make sure that you have a qualified lawyer to discuss that with you.

How a Colorado Court Divides a Marital Business

The division of property in divorce can be highly contested. If the divorcing parties were also business partners, it can be especially complicated. A Marital Business is one that is defined as a business or enterprise that employs one or both of the parties from which income or business losses or expenses flow to the personal incomes of the parties to the marriage. Continue reading “How a Colorado Court Divides a Marital Business” »