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.
In particular, the magistrate found that Husband had failed to disclose his 100% ownership interest in PEI–which the magistrate agreed was marital property–during K.E. and D.E.’s previous dissolution of marriage case. The magistrate awarded Wife $1,168,639 as her share of the value of Husband’s ownership in PEI. The magistrate also ordered Husband to “provide security to insure payment of his obligation.” The magistrate further increased Husband’s child support obligation to $12,000 per month, which was based in part on K.E. and D.E.’s combined monthly gross income of $397,432. The magistrate also ordered Husband to pay $62,691.75 of Wife’s attorney and expert witness fees “because of the parties’ disparate incomes and the finding that [H]usband’s failure to disclose his ownership interest of PEI led to the need for supplemental proceedings.”
District Court Review and Ruling
Husband requested a review of the magistrate’s order by a district court judge, who–in January 2019–ultimately agreed with the magistrate and adopted the magistrate’s decision concerning child support and attorney fees. But the district court disagreed with the magistrate’s allocation of the ownership interest in PEI and remanded the case for “further findings regarding the C.R.S. § 14-10-113 factors on which the magistrate relied in allocating the PEI marital asset.”
The magistrate did as instructed. In February 2019, after making factual findings under C.R.S. § 14-10-113, the magistrate reached the same conclusion and “reaffirmed the equal allocation of the ownership interest in PEI.” In May 2020, the district court judge adopted the magistrate’s findings on the division of property.
Colorado Court of Appeals Review and Decision
Husband appealed the district court’s adoption of the magistrate’s order. The Colorado Court of Appeals emphasized how domestic relations cases (including dissolution of marriage proceedings) are different than other types of litigation because “[f]amily members stand in a special relationship to one another and the court system.” C.R.C.P. 16.2(a). In a divorce case in Colorado,
Parties to domestic relations cases owe each other and the court a duty of full and honest disclosure of all facts that materially affect their rights and interests and those of the children involved in the case.
This rule is intended to “reduce the negative impacts of adversarial litigation in domestic relations cases.” This means that “each party has an affirmative obligation to disclose all information material to the resolution of the case without waiting inquiry from the other party.” In re Marriage of Evans, 2021 COA 141, ¶ 20.
When a spouse does not follow this rule, the other spouse can ask the court to reopen the divorce case and reallocate the parties’ marital assets and debts.
If a disclosure contains a misstatement or omission materially affecting the division of assets or liabilities, any party may file and the court shall consider and rule on a motion seeking to reallocate assets and liabilities based on such a misstatement or omission, provided that the motion is filed within 5 years of the final decree or judgment….
Therefore, if one spouse violates the “rigorous disclosure requirements of Rule 16.2,” the other spouse can ask a district court to exercise its “equitable powers…in cases where a material asset or liability has not been disclosed.”
During the divorce case, the district court entered an order allowing D.E. to hire an accounting firm to perform a business evaluation of “Overlook Mine & Gravel, LLC, Resources, LLC and Overlook Mine, LLC d/b/a Reclamation Ridge or any other business operated by” K.E.
Before the evaluation was completed, D.E. and K.E. entered into a separation agreement that awarded to K.E. as his separate property all businesses that K.E. operated during his marriage to K.E. The separation agreement acknowledged that D.E. was giving up her right to have the business evaluations completed by the accounting firms she hired. But the separation agreement also stated that the agreement was “made upon the assumption that each of the parties has made a full, complete, honest, accurate, and total disclosure to the other of the nature and extent of all assets and obligations of the parties.” The separation agreement further stated that “[a]s to any assets of the parties to which no such full disclosure has been made by either of the parties, this Agreement shall become null and void.”
The Colorado Court of Appeals found it critical to its consideration of D.E. and K.E.’s case that D.E. entered into the separation agreement with the assumption that “each of the parties has made a full, complete, honest, accurate, and total disclosure to the other of the nature and extent of all assets….” K.E. did not dispute that he knew about PEI during their divorce case and that “he did not tell [D.E.] about PEI or disclose any document relevant to its existence or valuation during [the dissolution] proceedings or the settlement negotiations.” Because D.E. did not have all of the information that she was entitled to receive under the mandatory disclosure requirements in a dissolution of marriage case, she “could not have knowingly, intelligently, or explicitly waived her right to assert any interest in PEI when she entered into the separation agreement.” Evans, ¶ 31. And because K.E. did not provide a full disclosure of PEI as discussed in the parties’ separation agreement and as required by C.R.C.P. 16.2, the court of appeals concluded that “the separation agreement is null and void as to PEI and the court had jurisdiction to divide the asset.” Id., ¶ 37.
Having agreed with the magistrate that it was appropriate to reopen the property division in K.E. and D.E.’s divorce case, the Colorado Court of Appeals addressed some questions that it had never answered before, including whether a court must consider the factors described in C.R.S. § 14-10-113 when it allocates a previously misstated or omitted asset under C.R.C.P. 16.2(e)(10).
The court of appeals held that it should.
The C.R.C.P. 16.2(e)(10) hearing is the first time the misstated or omitted property will be valued and equitably divided. Hence, it follows that the court should consider the section 14-10-113(1) factors when allocating such property under C.R.C.P. 16.2(e)(10). As part of the section 14-10-113 inquiry, the court must also value the previously misstated or omitted asset ‘as of the date of the decree or as of the date of the hearing on disposition of property if such hearing precedes the date of the decree.’
Evans, ¶¶ 51-52.
The factors a court must consider under C.R.S. § 14-10-113 include:
- The contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as a homemaker;
- The value of the property set apart to each spouse;
- The economic circumstances of each spouse at the time the division of property is to become effective; and
- Any increases or decreases in the value of separate property of the spouse during the marriage or the depletion of separate property for marital purposes.
The Colorado Court of Appeals concluded that the magistrate correctly allocated PEI as marital property of K.E. and D.E. when it:
- allocated only the value of the previously undisclosed asset (PEI) and did not reconsider or adjust the earlier property division ordered during the previous dissolution of marriage case between D.E. and K.E.;
- valued PEI as of the 2013 decree of dissolution while relying on Husband’s expert’s valuation of the business; and
- equally divided the value of PEI based on her findings that (1) Husband continued to own and operate the business and (2) D.E. and K.E.’s economic circumstances, which while similar at the time of the decree, were no longer similar because Husband had more income and assets than he had at the time the decree of dissolution of marriage was previously entered.
- Parties to domestic relations cases in Colorado–including dissolution of marriage cases–owe each other and the court a duty of full and honest disclosure of all facts that materially affect their rights and interests and those of the children involved in the case.
- If a mandatory disclosure in a Colorado domestic relations case contains a misstatement or omission that materially affects the division of assets or liabilities, then any party may file–and the court shall consider and rule on–a motion seeking to reallocate assets and liabilities based on the misstatement or omission.
- The motion requesting a reallocation of assets or liabilities must be filed within 5 years of the final decree or judgment.
- When deciding a motion to reallocate assets and/or liabilities, a court, among other things, must consider the C.R.S. § 14-10-113 factors that apply to property division and distribution in domestic relations cases in Colorado.