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.

Most Common Experts In Divorces

It is important to understand that not every case warrants the use of experts and you should fully discuss how experts might be employed in your particular case, with your lawyer.

An expert is a person who has particular education, training and qualifications to provide assistance to the parties and court. The Colorado Rules of Evidence, Rule 702, describes the basic function and role of experts:

“Rule 702. Testimony of Experts
If scientific, technical, or other specialized knowledge will assist the trier of
fact [judge] to understand the evidence or to determine a fact in issue, a
witness qualified as an expert by knowledge, skill, experience, training, or
education, may testify thereto in the form of an opinion or otherwise.”

When experts are hired in Divorce cases, the expert who will be asked to testify must be properly disclosed to the other side. The failure to properly disclose an expert witness may result in that expert’s testimony being excluded by the court or the information about which the expert has given to a party being stricken. Some experts require the entry of a court order that allows the expert to be “appointed.”

In almost every situation, witnesses who testify in court are required to have personal knowledge of certain facts before they are permitted to give opinion testimony. However, when an expert has been properly qualified, the expert may be called upon to give expert opinion testimony that is based on facts, documents, information, etc. that the experts has relied upon in giving opinions. Before the expert is permitted to testify, the court must make a ruling that the expert is qualified to give expert opinion testimony and is not testifying as a layperson.

 

I. PARENTING EXPERTS: 

There are many qualified parenting experts in Colorado. These parenting experts perform an invaluable service to families, children and the courts. The appointment of a parenting expert requires a court order. Court orders appointing parenting experts will set out the manner in which the expert is to be paid in order for the expert to commence work on any given case. Parenting experts will be charged with the responsibility of interviewing the children and the parents, receiving vital relevant documents, conducting an investigation and evaluation as to the “best interests of the children, and obtaining statements from witnesses and others, and ultimately, making written recommendations to the judge and parties. These expert are described in Colorado law:

  1. Parental Responsibilities Evaluator (“PRE”;
  2. Child and Family Investigator (“CFI”);
  3. Child’s Legal Representative (“CLR);

Colorado law sets out the specific manner in which parenting experts may be utilized in any Family Law or Domestic Relations cases. As described in, “The Role of the CFI and the CLR in Colorado,” parenting experts have a specially recognized importance: “The Court is authorized to appoint a child and family investigator (CFI, formerly special advocate) and/or child’s legal representative (CLR) who investigates and provides ‘best interests’ recommendations in Title 14 domestic cases.” There are obvious situations where parenting experts are most utilized by the Family Court:

a. Physical, emotional, or developmental abuse or neglect of children;
b. Mental health of a parent or a child;
c. Alcohol and substance abuse of a parent;
d. Domestic Abuse or Domestic Violence by a parent;
e. Crime(s) of violence by a parent;

When a parenting expert is appointed, both parents are expected to fully cooperate with the expert. This means that parents are responsible for scheduling all necessary appointments with the expert, providing requested information and necessary releases; being fully honest in providing information that is being gathered by the expert; submit to anger management or co-parenting classes; obtain drug or alcohol testing; and a variety of other assignments that the expert wants or needs. When a parent refuses to cooperate with a parenting expert, the court has the ability to issue further orders.

When a parenting expert has finished their evaluation and investigation, the expert will file a written report with the court. The judge in the case will read the report and will note the filing of the report into the record. All parenting experts are required to make specific recommendations to the judge that are in the “children’s best interests.” Those recommendations generally may include:

  1. Allocation of specific parenting time and holiday parenting time;
  2. Decision making;
  3. Designation if needed of the majority parent;
  4. Follow up requirements suggested to the Court, such as co-parenting classes, anger management classes, individual therapy, substance abuse or alcohol testing and classes, etc.

II. FORENSIC ACCOUNTANT/ECONOMIC EXPERT

Financial Experts are extremely important in some Divorce actions. The parties in Divorce cases may use a Forensic Accountant or Economic Expert, for a variety of reasons. These experts possess highly qualified skills in the specific area of Family Law. Such experts have a great deal of knowledge, background, qualifications, tax and testimony expertise, as well as a thorough understanding of the Domestic Relations laws in Colorado and how those apply to the parties’ financial situation or the legal issues in any given case.

By having a Forensic CPA involved as an expert, the rules provide that the expert can be an expert of just one of the parties, or a mutual expert who can provide documents and opinions to both parties. Once a Forensic CPA is designated as an expert, the rules require that the expert must be disclosed and there will be time deadlines for the filing and exchange of all written expert reports.

A Forensic CPA, in Divorce cases, should have a wealth of knowledge in reading and analyzing financial statements of the parties, banking and investment statements, applicable tax law, performing valuations of business interests, analyzing credit card and loan statements, and preparing Marital Spreadsheets of assets and debts, formulating spreadsheets regarding the Spousal Maintenance and Child Support guidelines, and other critical analysis. Meetings between the Forensic CPA and counsel and their client, will establish the goals of the financial expert and the need for documentation to assist the expert in the case. I have found that having a Forensic CPA who is also an expert on Tax Law, has served as a tremendous benefit to my clients in a variety of ways.

Since Forensic CPA’s and Economic Experts in Divorce cases are specialized, it is always a great idea to have communications with your lawyer about the manner and method that these experts can be best utilized. I have found in my practice that many more cases settle when there is a Forensic CPA, than those cases where the parties did not rely on any financial expertise. This is so, because in the preparation of Marital Spreadsheets, there is a straightforward document that lays out all property/assets and debts and includes an equalization amount as to how the marital estate should be, “fairly and equitably” divided.

 

III. APPRAISERS

An appraiser may be an expert in a Divorce case, where the value of personal property or real property is in dispute. I have had many cases where it is necessary to value personal property such as classic cars, jewelry, antiques, collectables, artwork, etc. By having an expert appraiser’s report, it will greatly assist the court in understanding the value of those disputed properties.

The most common expert, in divorce cases, is an appraiser in the field of real estate. Expert real estate appraisers may be called upon to value land, residential or business properties. This is particularly critical where the parties have come into the marriage, already owning homes, condominiums or land and there is a question as to the amount that those properties increased in value, over the course of the marriage. Appraisers are usually given all relevant information as to the real properties, such as deeds, mortgage balances and recent sales transactions, so that they can provide a valuation of real estate that is as accurate as possible.

The most common question, divorcing parties ask is, “What will happen to the marital residence or home.” If one of the parties wishes to keep the house and “buy-out” the other parties’ interest, it is important to determine the value of the house and how much equity there is in the house. As an example, when an appraiser states that a house has a Fair Market Value of $300,000 and has a mortgage with a payoff balance of $100,000 this means that there is equity in the house of $200,000. When one of the parties agrees to remove the other spouse from the mortgage and “buy-out” the other party’s interest, it usually requires that the equity payment of $100,000 will be made to the other spouse on the date of the closing on the refinance of the mortgage. Real estate appraisers can also be of assistance when parties have agreed to a sale of the marital residence and want to know the value of the house as a negotiating tool in the final division of all marital property and debts.

In some cases, parties have agreed to have a real estate agent or broker in their Divorce case, to conduct a Comparative Market Analysis (“COMP”). Realtors who perform this evaluation based upon the Fair Market Value of real property, often times charge far less than real estate appraisers do.

If you are involved in a Divorce matter or planning for a divorce at some time in the future and you have considerable assets and/or debts, the assistance of an appropriate expert may be the best move you and your legal team can make.

Is My Spouse’s Business Included in a Divorce?

In many Divorce or Legal Separation cases, one or both of the spouses have business ownership interests. These business ownership interests are required to be disclosed during the legal process of either a divorce or legal separation, in Colorado. Colorado Rules of Civil Procedure explains the duties that both parties have in making sure that the other party has been provided with, “full and honest disclosures of all facts that materially affect their rights and interests and those of the children involved in the case.” If a party in a divorce fails to make the necessary disclosures, this may result in the court imposing sanctions or penalties for the failure to make such disclosures.

A Business interest that has been created during the marriage or which a party has relied upon as income for the support of the family, in either whole or part, is required to be disclosed in any “domestic relations” case, such as a divorce. It is important to provide your attorney with proof of the existence of any such business, such as with copies of articles of incorporation with the Colorado Secretary of State, partnership agreements, business tax returns, issuance of stocks, etc. In many situations, businesses have had tax specialists who have access to this kind of information.

Assuming that one of the spouses has one or more business interests, the next step after the disclosure of the business, is to determine the “value” of the business. There are experts in domestic relations cases and divorce cases, who specialize in valuing a company, business or partnership. Attorneys, who represent clients in divorce cases, should be familiar with the best experts who can conduct a “valuation.” Many valuation experts are also Certified Public Accountants, who have a great deal of training in this area of the law and understand the expectations and rules that apply to experts.

Experts who conduct business valuations have specialized skills and when they are involved in legal proceedings, such as divorce cases, they are called, “Forensic Experts.” This means that they have a background, experience and training in this area of the law and have testified in court and given opinions regarding the value of a business or business interests.

The rules of civil procedure describe the manner in which experts are to be disclosed and how their valuations are to be provided to the other party or other attorney. There are rules regarding expert’s reports and valuation opinions and the timelines in which such reports must be made, prior to the court hearing. Because of the time limitations that are described in the rules of procedure, it is important to have the process begin as early in the case as possible. When a lawyer representing a party in a divorce has information that the marital estate’s financial status will be impacted by the valuation of a marital business, the name of any expert witness and the expert’s resume, must be timely disclosed.

Because of the impact that a valuation of a marital business may have on a divorce proceeding, this type of information is needed well in advance of attending mediation or a court proceeding. The lawyer representing you, will want to  meet with you and the expert on one or more occasions before any reports are issued regarding the valuation  issue, so that proper preparation is done well in advance of mediation or a court hearing.

Experts who testify regarding a business or company valuation, whether that business is considered a, “Mom and Pop” business or a larger company with many partners and employees, is a specialized skill. By having all documents needed for the expert along with a historical analysis of the business operation practices and finances will be needed in the divorce. By working closely with the valuation expert, a client can receive both legal advice from an attorney and financial advice from the expert, which will prove to be essential to any kind of pre-trial settlement, as well as with respect to the facts that will be presented if a court hearing is needed.