W.M.W. (Husband) and K.C.W. (Wife) filed for divorce. They could not agree on how their marital property should be divided and how much spousal maintenance (support) should be paid. After a permanent orders hearing, the Colorado district court judge assigned to decide the disputed issues in their case entered orders that Husband believed were incorrect, so he appealed the district court’s rulings to the Colorado Court of Appeals.

Husband argued in his appeal that the district court’s property division was inequitable because it “(1) failed to value the personal property; (2) failed to include [W]ife’s Jamaican property as part of the marital estate; and (3) ordered him to pay more of the marital debts.” The court of appeals “perceive[d] no abuse of discretion [by the district court judge] in the property division” and affirmed this part of the district court’s decision.

The focus of this post will be on issue (1)–the Colorado district court’s alleged failure to value the parties’ personal property. Issue (2), issue (3), and the district court’s spousal maintenance order will be addressed separately in other posts.

Property Division in Colorado Divorce Cases

In a Colorado divorce case, a district court “shall set apart to each spouse his or her property and shall divide the marital property, without regard to marital misconduct, in such proportions as the court deems just after considering all relevant factors….” C.R.S. § 14-10-113(1).

The property division must be equitable, but not necessarily equal. And an equitable division depends on the facts and circumstances of each case. “The key to an equitable distribution is fairness, not mathematical precision.”

In re Marriage of Wright, 2020 COA 11, ¶ 3 (quoting In re Marriage of Gallo, 752 P.2d 47, 55 (Colo. 1988))

Before a Colorado district court judge can equitably divide marital property, the judge must “find the approximate current value of all property owned by the parties.” But “specific findings as to the value of each asset are not always required.” In circumstances where the parties present conflicting evidence of asset valuations, “the court may order that each party should retain the property in his or her possession without attributing a value.” In re Marriage of Wright, 2020 COA 11, ¶ 4.

The Possible Consequence of Presenting Unsubstantiated and Imprecise Evidence of the Value of Personal Property to the Court

Wife valued the personal property at $2,900, but Husband claimed it was worth only $500. At the permanent orders hearing, Husband provided unsubstantiated and imprecise estimates of the value of their personal property with statements such as the lamps were worth “somewhere in the range of $600, $700” and the paintings and mirrors were worth “several hundred [dollars].”

After hearing this evidence, the district court concluded that it was “almost an impossibility” to value the parties’ personal property. Therefore, the Colorado Court of Appeals affirmed the district court’s decision that “it was equitable for each party to retain the property in his or her possession.” In re Marriage of Wright, 2020 COA 11, ¶ 6.

Lessons Learned

  • When dividing marital property in a Colorado divorce case, a judge must find the approximate current value of all property owned by the parties.
  • If the parties present unsubstantiated and imprecise evidence of the value of personal property, then the judge can divide the parties’ personal property by ordering each party to retain the personal property in his or her possession.

A.C. (Wife) and N.C. (Husband) signed a prenuptial agreement–also referred to as a martial agreement–before they were married in 2010. The agreement identified their separate property–the property that each had acquired before their marriage–which included some land Husband owned that was referred to as the Shoshone property. According to the prenuptial agreement, the Shoshone property would remain as Husband’s separate property in the event he and Wife later divorced.

About a month after they were married, Husband and Wife decided to buy some real estate together. Husband pledged his Shoshone property as collateral for a home equity line of credit, which they used as a down payment and to remodel the property they wanted to buy, which was referred to as the Pinyon property.

Some time later, Husband and Wife decided to end their marriage, and a dissolution of marriage (divorce) case was filed in a Colorado district court. Because they could not agree on how their marital property should be divided, Husband and Wife had to appear before a judge at a permanent orders hearing so the judge could make the decision.

After hearing the parties’ evidence, the district court judge ruled that Husband’s Shoshone property became marital property when Husband pledged it as collateral to secure a marital loan.

Husband appealed the district court judge’s decision to the Colorado Court of Appeals.

Continue Reading Pledging Separate Property as Collateral to Purchase a Marital Asset Does Not Convert the Separate Property Into Marital Property

I previously wrote here about the dissolution of marriage case between S.L.S. (Wife) and T.J.D. (Husband) and Wife’s appeal of the district court judge’s spousal maintenance and child support awards. In that case, the Colorado Court of Appeals held that the district court judge had incorrectly considered unrealized investment gains in a TD Ameritrade account awarded to Wife as part of the divorce case’s property division to be “gross income” for the calculation of maintenance and child support. The court of appeals also concluded that the district court incorrectly calculated Husband’s income as well.

At the permanent orders hearing in the district court, Husband–who received all of the rental properties in the divorce–presented evidence of each rental property’s rental rate and associated depreciation. Husband asked the district court judge to “include all depreciation for each property when determining his net monthly rental income,” while Wife argued that “the court should not consider any depreciation.” The district court judge found that “the depreciation in excess of the income [H]usband earned on the rentals would not be included in his income calculation but that all other depreciation would be allowed.”

The Colorado Court of Appeals disagreed. Colorado’s spousal maintenance and child support statutes identify income from rents as “income” for purposes of calculating maintenance and child support. According to these statutes, “‘gross income’ equals gross receipts minus ordinary and necessary expenses…required to produce such income.” C.R.S. § 14-10-114(8)(c)(III)(A) (spousal maintenance); C.R.S. § 14-10-115(5)(a)(III)(A) (child support). But the Colorado spousal maintenance and child support statutes both specifically exclude from ordinary and necessary expenses the “amounts allowable by the internal revenue service for the accelerated component of depreciation expenses…or any other expenses determined by the court to be inappropriate for determining gross income for purposes of calculating” maintenance and child support. C.R.S. § 14-10-114(8)(c)(III)(B) (spousal maintenance); C.R.S. § 14-10-115(5)(a)(III)(B) (child support) (emphasis added). Furthermore, ordinary and necessary expenses “do not include deductions for expenses in excess of income produced.” In re Marriage of Schaefer, 2022 COA 112, ¶ 28 (citing In re Marriage of Eaton, 894 P.2d 56, 60 (Colo. App. 1995)).

Continue Reading The Importance of Distinguishing Between Depreciation and Accelerated Depreciation When Calculating Rental Income for Spousal Maintenance and Child Support in Colorado

S.L.S. (Wife) and T.J.D. (Husband) were married for 15 years. During their marriage, Wife and Husband agreed that Wife would stay home and care for their four children while several businesses that Husband owned would be the primary source of the family’s income. The financial success of Husband’s businesses allowed Husband and Wife to open and deposit marital funds into a TD Ameritrade investment account that grew to become a substantial asset of the parties’ marriage.

Husband and Wife also owned several properties that were used as rentals and produced rental income for their family. While Wife sometimes helped with Husband’s businesses, she last worked outside the home in 2007. She later enrolled in an online program to earn a master’s degree in library science.

The Divorce Case and Entry of Permanent Orders

The parties decided to end their marriage, and a dissolution of marriage (divorce) action was filed in a Colorado district court. Because Wife and Husband were unable to settle all of the disputed issues in their case, they participated in a permanent orders hearing (trial) before a district court judge who entered the following permanent orders:

  • Husband would receive $6,703,173.22 of the marital estate, including their real estate and all of the rental properties;
  • Wife would receive assets worth $2,782,365.80, which included the assets held in their TD Ameritrade investment account; and
  • Wife would receive a payment of $1,960,403.71 from Husband to “equalize this uneven division.”

To determine how much Husband should pay Wife in spousal maintenance and child support, the district court judge calculated Husband’s monthly income at $57,662 and Wife’s monthly income at $19,666 ($16,666 of which the district court considered as “unrealized monthly gains from the parties’ investment account”). The court then ordered Husband to pay Wife maintenance in the amount of $5,000 per month for 48 months while Wife finished her graduate school program. The court also ordered Husband to pay Wife $132 per month in child support.

Continue Reading Unrealized Capital Gains In An Investment Account Are Not Income For Maintenance and Child Support Purposes in Colorado

B.O.T. (Husband) and C.M.T. (Wife) had been married for 12 years when they decided to end their marriage. Their dissolution of marriage case filed in Colorado’s Jefferson County District Court seemed to be moving smoothly towards resolution until they hit a snag. While Husband and Wife were able to resolve most of their financial and parenting disputes, they could not agree on whether some bonuses Wife may receive after their divorce case concluded should be considered marital property and equitably divided as part of their marital estate. As is the case when divorcing spouses cannot come to an agreement on their own, they would have to appear at a permanent orders hearing where they would each have an opportunity to present their case and then let a judge decide their fate.

At the permanent orders hearing, Wife explained that the year-end bonuses–one from an annual incentive plan and the other from a supplemental incentive plan–were “highly variable and highly discretionary.” Wife further testified that she was “not guaranteed” to receive a bonus and that any bonus payments would be dependent on her and her company achieving certain performance goals and objectives. Furthermore,

the chief executive officer of [W]ife’s employer [had] ‘full discretion and final authority to adopt, amend, alter, or rescind the [annual incentive plan] without advance notice for any reason at his/her sole discretion based upon financial or operating conditions or otherwise.’

The director of compensation of Wife’s employer confirmed Wife’s explanation at the hearing and testified that an “employee’s past bonuses were no indication of a future payment because each year the eligible employees ‘start[] at zero.”

The Colorado district court judge was convinced, and he concluded that because Wife did not have “contractually enforceable rights” to any potential future bonuses, they could not be considered marital property that could be divided as part of the couple’s marital estate.

A few weeks after the permanent orders hearing had concluded, Wife’s company awarded her “substantial bonuses.” Husband appealed the district court’s property division and distribution orders, arguing that Wife’s bonuses should have been considered marital property.

The Colorado Court of Appeals disagreed with Husband and affirmed the district court’s decision. The court of appeals emphasized how the Colorado Supreme Court “has directed…that a court’s determination of whether a spouse’s interest in an employment-related benefit constitutes property focuses on a spouse’s enforceable rights to the interest.” In re Marriage of Turner, 2022 COA 39, ¶ 24. Thus,

contrary to [H]usband’s claim, contractual enforceability at the time of the permanent orders hearing (or, if earlier, the date of the decree) is essential to the determination of whether this type of benefit is property.

Id.

Because Wife had not been awarded any bonuses–and there was no evidence that she had an enforceable right to them–at the time of the permanent orders hearing, the district court “did not err by excluding wife’s potential bonuses from the division of marital property.”

Lessons Learned

  • When dissolving a marriage, a district court judge must order an equitable division of the parties’ marital property.
  • In order to determine whether an interest is marital property, a court must decide whether a spouse’s interest constitutes property subject to the court’s division, and, if it is, whether the property is marital.
  • The determination of whether a spouse’s interest can be divided as marital property turns on whether the spouse has an enforceable right to receive a benefit.
  • If a spouse does not have an enforceable right and the spouse’s interest is only speculative or a mere expectancy, then the spouse’s interest is not property subject to division in a dissolution of marriage case.

K.E. (Husband) and D.E. (Wife)’s divorce appeared to be concluded in 2013 when a Colorado district court entered a decree dissolving their 15-year marriage. As part of their divorce case, the district court approved K.E. and D.E.’s separation agreement and parenting plan, which “resolved all issues concerning property division, parenting time, child support, maintenance, and attorney fees.”

In 2016, Wife initiated a post-dissolution of marriage proceeding when she filed a motion to modify Husband’s $534 monthly child support obligation because of Wife’s employment and her belief that Husband had earned more income than he disclosed during their dissolution of marriage case.

Wife also learned that Husband had failed to previously disclose in their dissolution case his 100% ownership interest in a company called Premier Earthworks & Infrastructure (PEI). Wife filed a motion under Rule 16.2(e)(10) of the Colorado Rules of Civil Procedure asking the court to “reopen the property division…and allocate the ownership interest in PEI as a marital asset.”

In February 2018, Wife and Husband participated in a four-day hearing before a district court magistrate. After the hearing concluded, the magistrate granted Wife’s motion to reallocate the marital property and her request to modify the amount of child support Husband owed each month. Continue Reading The Case of the Undisclosed Construction Business Resulting in the Reallocation of a Marital Asset

E.H. and M.N. were same-sex partners from November 2001 to November 2014. Although they never formally married–even after October 2014, when Colorado recognized same-sex marriages before the U.S. Supreme Court did in 2015 with its Obergefell v. Hodges decision–they filed a petition for dissolution of marriage in Colorado’s Arapahoe County District Court. E.H. and M.N. participated in mediation, which resulted in a separation agreement confirming that they had entered into a common law marriage on December 1, 2002.

The separation agreement addressed the division of the property that E.H. and M.N. had accumulated during their relationship such as their home, furniture and household goods, bank accounts, stock purchase plans, retirement plans, vehicles, pets, and other assets. The separation agreement also addressed how their debts and obligations would be divided, and it required M.N. to pay E.H. $1,000 in monthly spousal maintenance for about seven years.

E.H. and M.N. attended the initial status conference in the district court where the judge explained to them that the court would have to first find that a marriage existed before it could consider the petition for dissolution. But the parties told the court that they had already settled all of the disputed issues in their case through mediation, so E.H. and M.N. stipulated to the dismissal of their divorce case.

Some time later, E.H. tried to obtain a portion of the retirement assets and the maintenance payments she believed M.N. owed her as part of their separation agreement. But M.N. told E.H. that she believed they were never married, which prompted E.H. to file a second petition for dissolution of marriage. M.N. then filed a motion to dismiss the petition in which she argued that she and E.H. were never married under Colorado common law. Continue Reading The Case of the One-Sided, Purported Same-Sex Common Law Marriage that Was Not Recognized Under Colorado Law

On November 30, 2003, same-sex partners T.P. and D.L. held a ceremony before family and friends where they exchanged vows and rings. Approximately 15 years later, T.P. and D.L. ended their relationship.

T.P. filed a divorce petition in the Jefferson County District Court in Colorado asserting that he and D.L. had entered into a common law marriage on November 30, 2003, the date of their ceremony. But D.L. argued in the dissolution case that it was impossible for him and T.P. to have entered into a common law marriage because same sex marriages were not recognized or protected under Colorado law at the time of their ceremony. D.L. further claimed that he and T.P. did not mutually agree to enter into a common law marriage as required under Colorado’s common law marriage test existing at the time of their divorce case.

T.P. and D.L. participated in an evidentiary hearing in the district court where they each testified and also called several family members and friends to testify about their relationship. Continue Reading The Case of the Same-Sex Common Law Marriage that Was Recognized Under Colorado Law

D.Z. (Wife) and J.Z. (Husband) married in 2001. At the time of their marriage, Wife and Husband each had separate retirement accounts. They also each received separate inheritances during their marriage.

Wife filed for divorce in 2016, and the district court entered orders dissolving Wife and Husband’s marriage in 2018.

When it came time to identify the parties’ property as either separate or marital and equitably divide and distribute the marital property, Wife claimed that her and Husband’s separate retirement accounts and inheritances–including the increase in value of those assets during their marriage–were their separate property not subject to equitable division and distribution in their divorce because of an oral agreement she and Husband had made.

In support of her claim, Wife relied on a 2007 amendment to a revocable living trust Wife and Husband had created as part of their estate plan, which “explicitly removed the retirement accounts from the trust” as a result of their oral agreement. Furthermore, according to Wife, her and Husband’s separate inheritances were not mentioned in the amendment because the inheritances were never included in the trust. Continue Reading The Case of the Unenforceable Oral Marital Agreement

J.A.B. (Husband) married Q.H. (Wife) in September 2015 in Colorado. Husband and Wife separated in November 2016, and Husband filed for divorce in Colorado’s Jefferson County District Court in December 2016.

While Husband and Wife were able to resolve most of the disputes in their divorce case through mediation, they could not agree on how to divide and distribute their marital property.

The main dispute centered around an interspousal transfer deed (ITD) Husband signed in connection with Wife’s purchase of a house in California during their marriage. While Wife paid approximately $1 million for the house, the ITD Husband signed conveyed any interest Husband had in the California house to Wife as her separate property.

To further complicate their dispute, the source of part of the money Wife used to buy the California house could be traced back to 11 transfers of money Husband made to Wife in the amount of $296,500 during their marriage. Wife used most of this transferred money to buy the California house. Continue Reading The Case of the Interspousal Transfer Deed that Failed as a Written Marital Agreement