Chapter 37 - § 37.1 • GENERAL CONSIDERATIONS

• Jurisdiction: Colorado

§ 37.1 • GENERAL CONSIDERATIONS

§ 37.1.1—Introduction

Disposition of property upon divorce is governed by the Uniform Dissolution of Marriage Act (UDMA). C.R.S. §§ 14-10-101, et seq. The manner in which property is treated under the UDMA often differs significantly from how such property is viewed by estate planners and their clients. Also, the manner in which the UDMA treats property differs from the way property is treated under the rules of intestate or testate succession. A proper understanding of how property is allocated upon divorce is necessary to ensure that estate planners achieve their clients' goals and expectations. If the estate planner neglects to consider a possible marital dissolution (i.e., divorce) of the client or a beneficiary, the client's goals may be thwarted.

When preparing an estate plan, estate planners must take into account the unintended effect that their client's (or a beneficiary's) later divorce could have on the estate plan. In addition, couples who are in the process of obtaining a marital dissolution (or legal separation) should consider the effect of a divorce (or legal separation) on their respective estate plans, including both the tax and dispositive effects of their existing wills, trusts, pension plans, retirement accounts, life insurance policies and other contractual benefits, powers of attorney, and arrangements for minor children. A spouse contemplating divorce may find it beneficial to review and revise his or her estate plan before filing the petition for dissolution to minimize the results that can occur if he or she dies during pendency of the dissolution action. The income, estate, and gift tax consequences of transferring property pursuant to a divorce must also be taken into account. This chapter does not address the income tax consequences associated with divorce.

§ 37.1.2—Marital and Separate Property

In connection with entering a decree of dissolution of marriage, courts must make a disposition of property between the spouses. C.R.S. § 14-10-106(1)(b). The court must first determine whether an interest or asset constitutes "property." In re Marriage of Balanson, 25 P.3d 28, 36 (Colo. 2001) (citing In re Marriage of Hunt, 909 P.2d 525, 529 (Colo. 1995)). If so, the court must then determine whether the property is marital property or separate property. Id. at 35. The court must first allocate to each spouse his or her separate property and then equitably divide marital property between the spouses. C.R.S. § 14-10-113. Equitable division does not require equal division. In re Marriage of McGinnis, 778 P.2d 281, 284 (Colo. App. 1989); In re Marriage of Jaeger, 883 P.2d 577, 582 (Colo. App. 1994). The court must consider all relevant factors, including: (1) the contributions of each spouse; (2) the value of property set apart to each spouse; (3) the economic circumstances of each spouse; and (4) any increase, decrease, or depletion in the value of any separate property during the marriage. C.R.S. § 14-10-113(1); see In re Marriage of Cardona, 316 P.3d 626 (Colo. 2014).

All property acquired by either spouse during the marriage is presumed to be marital, regardless of how titled, unless it is shown to be separate property. C.R.S. § 14-10-113(3). The following categories are generally excluded from "marital property": (1) property acquired by gift, bequest, devise, or descent; (2) property acquired in exchange for property acquired prior to the marriage or in exchange for property acquired by gift, bequest, devise, or descent; (3) property acquired by a spouse after a decree of legal separation; and (4) property excluded by valid agreement of the parties. C.R.S. § 14-10-113(2) and (3). Although not defined in the Colorado statute, "separate property" is property of a spouse that is not "marital property." E.g., Balanson, 25 P.3d at 35. It is generally recognized as meaning property a spouse owned prior to the marriage, property that the spouses have agreed will remain separate, and the non-marital property described in items (1) through (4), above. See C.R.S. § 14-10-113(1) through (4); In re Marriage of Campbell, 599 P.2d 275 (Colo. App. 1979); In re Marriage of Sarvis, 695 P.2d 772 (Colo. App. 1984). However, for separate property to retain its separate character, the property must be traceable to specific, separate assets. In re Marriage of Renier, 854 P.2d 1382 (Colo. App. 1993).

When one spouse causes title in his or her separate property to be placed in joint ownership with the other spouse, a gift to the marital estate is presumed and such asset becomes a marital asset.¹ Similarly, a gift by a third-party donor during the marriage that increases the value of a marital asset is presumed to be a gift to the marriage. In re Marriage of Krejci, 297 P.3d 1035, 1037 (Colo. App. 2013). Marital property also includes the appreciation of a spouse's separate property or property acquired in exchange for separate property, during the term of the marriage, commencing from the later of the date of the marriage or the date the property was acquired. C.R.S. § 14-10-113(4).² A spouse may have equitable rights in property titled in the other spouse's name, but such rights are "inchoate" prior to the filing of the petition for dissolution. Shearton Serv. Corp. v. Johnson, 5 P.3d 395, 397 (Colo. App. 2000).³ However, once the petition is filed, the marital estate is created, and each spouse's interest in marital property vests — i.e., comes into existence⁴ — and therefore must be accounted for and allocated as part of the marital dissolution.

Significantly, for purposes of allocation of the marital estate, "property" and an "asset of a spouse" do not include any interest a party may have as an heir or beneficiary under a third-party will, revocable trust, life insurance or retirement plan instrument, or any other donative third-party instrument that is amendable or revocable, nor shall any such interests be considered as an economic circumstance or other factor in the division of marital property. C.R.S. § 14-10-113(7)(a), (b), and (c). In other words, such beneficial interests may not be taken into consideration during a divorce. In contrast, a spouse's vested remainder interest in an irrevocable trust is properly considered to be "property" for purposes of property division, as is the marital appreciation of that vested remainder interest. In re Marriage of Dale, 87 P.3d 219 (Colo. App. 2003)...