23rd Aug 22 6:11 pm
coloradodivlawDivorce is often emotionally stressful and financially challenging. People facing divorce in Colorado may wonder how the Colorado courts may divide trusts and estates. In particular, those with trusts from before marriage, or trusts created during a marriage, may be concerned about how the court will divide their trust. Further, spouses experiencing divorce may wonder whether their inheritance and gifts are subject to division. Understanding how Colorado law works can benefit people experiencing divorce, providing a sense of clarity in what can seem to be a confusing and complex process. Consider reaching out to the dedicated family law attorneys at Colorado Divorce Law Group at (720) 593-6442 to learn more about divorce and the division of trusts and estates.
Generally, property division at divorce depends on whether a state is a community property state or an equitable division state. In community property states, the court divides all marital property by half upon divorce. Only a small subset of states, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, are community property states. Most states are equitable division states. Colorado is an equitable division state. Rather than dividing marital property fifty-fifty, Colorado courts divide marital property equitably–in a way the court sees as fair under Colorado law.
When determining how a Colorado court will divide property at divorce, it is essential to understand the distinctions between separate property and marital property. Colorado Revised Statute §14-10-113 provides that all spouses retain their separate property, whereas the court divides marital property equitably. Separate property is property received before marriage and gifts or inheritance received during the marriage. Generally, all other property acquired during the marriage is marital property subject to equitable division upon divorce. Examples of separate property include:
Additionally, examples of marital property include:
According to Colorado Revised Statute §14-10-113, Colorado courts consider several factors when dividing property equitably. First, courts look at each spouse’s contribution to the acquisition of the property. This includes a spouse’s contribution as a homemaker. Second, courts examine the value of property each spouse has. Third, courts evaluate the economic circumstances of the spouses at the time of the divorce. Courts also weigh the desirability of giving the home to the children’s primary caretaker. Fourth, courts examine the changes in the value of the separate property during the marriage. Courts also look at the use of separate property for the marriage.
Is a trust obtained before marriage separate property or marital property? A trust secured before marriage is separate property, meaning that the spouse who is the beneficiary of the trust retains ownership of the trust at divorce under Colorado law. Suppose an individual’s grandparents set up a revocable trust with the individual as a beneficiary. In that case, the individual does not have to share the trust with an ex-spouse after divorce because the trust is separate property. However, what actually constitutes revocable v. non-revocable beneficial interest in a trust can be complicated and it’s best to speak to an attorney to fully evaluate the differences.
Increases in Value of the Trust Corpus
It is important to note that if you have a trust established prior to the marriage, it may contain a vested interest that can increase over the duration of the marriage. How the trust corpus is used, whether it increases in value, and where it is kept, all factor in to whether your separate property interest has acquired a marital component.
Is a trust that was created during a marriage separate property or marital property? There are two types of trusts: revocable trusts and irrevocable trusts. Revocable trusts can be undone, whereas irrevocable trusts provide that property must be transferred to the designated beneficiary. In other words, irrevocable trusts cannot be undone.
People may create revocable and irrevocable trusts during marriages as a way to attempt to shield property from a spouse. Colorado’s equitable division law generally does not treat trusts created by one of the parties during marriage as separate property. A revocable trust created during the marriage is marital property subject to equitable division at divorce. Importantly, irrevocable trusts cannot be changed. However, Colorado courts may consider and compensate a spouse for an irrevocable trust created during the marriage.
If one spouse creates an irrevocable trust during the marriage, they may attempt to name a relative as a beneficiary in an attempt to shield property from the other spouse. In that case, the court cannot undo the irrevocable trust. However, the court can order the spouse who created the trust to compensate the other spouse for the trust. Colorado courts do not favor using trusts to protect assets during a marriage. Consider reaching out to an experienced divorce attorney at Colorado Divorce Law Group to learn more about the effect of revocable and irrevocable trusts on divorce and the division of trusts and estates.
However, if a third party, such as a parent of the spouse, creates a trust during the marriage, the analysis is different and depends on the nature of the trust.
Separate property can become marital property through comingling. Commingling occurs when spouses combine property, and it becomes difficult to trace the origin of the property. An example of comingling is placing funds acquired before marriage in a joint account. Further, commingling can occur if one spouse purchased property before marriage and then adds the other spouse’s name to the deed. Even if the property is initially separate, it can become marital property through commingling. Once the property is commingled, the court may divide it equitably between the spouses.
Under Colorado law, spouses may create premarital or post-marital agreements, which outline the scope of marital and separate property. Courts may honor premarital and post-marital agreements. Individuals have the right to contract, and premarital and post-marital agreements are contracts. However, courts may also find that premarital and post-marital agreements are invalid. A Colorado court might find the agreement invalid if one spouse, or the spouse’s in-laws, coerced the other spouse into signing the agreement. The laws and requirements to enter into a valid pre or post-marital agreement are very strict and have specific requirements. It’s easy to think that you are protected by falling into this trap, only to discovery upon divorce that you failed to follow the specific requirements of the law.
Colorado is an equitable division state. Division of property upon a dissolution of marriage depends on several factors, including whether the property is marital or separate. People facing divorce may wish to contact a Colorado divorce attorney who understands divorce and the division of trusts and estates. Consider contacting the dedicated, compassionate, and experienced legal team at Colorado Divorce Law Group at (720) 593-6442 to learn more.
