Colorado Info

Colorado Divorce Start Your Divorce Find Professionals Colorado Articles Divorce Facts Divorce Grounds Residency Divorce Laws Property Division Alimony Child Custody Child Support Divorce Forms Process Service Grandparent Rights Forum Colorado Products Divorce by County

Colorado Articles

Agreements Custody & Visitation Counseling Divorce/General Financial Planning Mediation SEE ALL

Info Categories

Contemplating Divorce Children & Divorce Divorce, Dollars & Debt Divorce Laws Divorce Process Divorce Negotiation SEE ALL

More Information

Articles Checklists Research Center Cases of Interest Dictionary Encyclopedia Encyclopedia (pop-up) Blogs

For Professionals

Advertise With Us Free Network Page Join Our Network Submit Articles Sign In

Network Sites

Colorado Divorce Support Colorado Divorce Online

Divorce Myths, Mistakes and Myopia

In the course of my divorce financial and mediation practice, I have often had clients repeat some specific piece of information they received from a well-meaning relative or friend. In general, such information should be taken with a very large grain of salt, indeed.

Some of the advice may be absolutely accurate in another state. Still other advice is outdated, perhaps based on an obsolete part of US income tax code, or is misinterpreted in such a manner as to be financially dangerous. These bits and pieces of advice often morph in the telling, gaining the stature of a new "urban myth", with people swearing that they know that their factoid is absolutely true.

Some of this information can cause the divorcing person to make some drastic mistakes that can affect them for years to come. These unpaid advisors and cheering squads, with the very best of intentions, often urge their divorcing friend or loved one into very short-sighted courses of action, with the result of damaging any future relationship with the spouse, or sacrificing their future retirement to get revenge, or for other short term purposes.

Some of the most common myths, mistakes and myopia are often easily corrected if done ahead of time and prior to the divorce being finalized or a settlement document being signed.

MYTH - Inheritances are considered to be a part of marital property

In Colorado, inherited property or that received by gift, if not commingled with marital funds, is generally considered separate property. However any gain on the inheritance during the time of the marriage may be considered to be marital property, and thus subject to division during the divorce. For example, if you inherited or brought into the marriage a brokerage account worth $50,000, unless you put your spouse's name on the account or transferred some of the funds into a joint account (or used the funds to purchase an item for the enjoyment of the spouse and family), only the gain (if any) should be subject to division during the divorce.

MYTH - IRA rollovers from one spouse to another are taxable and subject to the 10% penalty for early withdrawal

This could be true, but if done correctly, the transfer may not be taxable, and possibly, the 10% early withdrawal penalty can be avoided. For example, if the divorce decree specifies that one spouse transfer part or all of his/her IRA to the other spouse, AND the rollover occurs from the transferring IRA custodian to the spouse's receiving IRA custodian, the transfer is not a taxable event, nor is a 10% penalty invoked. A spouse receiving the IRA account may choose to take some or all of the funds in cash. If done within IRA 72T guidelines, the amount received in cash is taxable, but no 10% penalty is incurred.

MISTAKE - The value of a defined benefit pension, such as a PERA or a Civil Service Pension is the amount contributed by the employee spouse

These and other "old fashioned" pensions, are often worth far more that the contributions by the employee, and often have a cost of living adjustment for retirees. The best way to obtain the value of these kinds of pensions is to have a professional pension valuation performed. Often one spouse has a large value tied up in his or her pension, and if the pension is not divided, other assets must be used to compensate the non-pension spouse.

MISTAKE - Having fun with the divorce proceeds

Some divorcing people view the receipt of funds received as a result of divorce as a lottery winning, or as manna from heaven. They feel as if they have earned the settlement proceeds, and spend it as soon as they get it. Friends and family also may inappropriately encourage their loved one to enjoy themselves, and go ahead and spend. Taking a cruise or taking the children to Disney World may sound great, but in the long run, it often is not the best use of such funds. Until a person has a solid financial plan for utilizing the money, and has established a good financial footing, it is often unwise to spend money that can be used to build for a comfortable future.

MYOPIA - I just need extra money today I don't care about the future

Many people are so anxious to get through the divorce process that they will settle for any proposal that appears OK to them. Still others will agree to receive cash today, even if receiving part of other assets, such as IRA funds, would make more sense in the long run. Sometimes retirement funds are worth their proverbial weight in gold. They grow tax deferred, and the penalties for early withdrawal help discourage people temporarily short on cash to dip into the retirement funds. Having an IRA grow for ten, twenty or even thirty years can make a huge difference in a person's ability to retire.

MYOPIA - Keeping house as a retirement plan

One of the divorcing couple often wants to keep the house. They may be very attached to it, they may not want to uproot their children, or it might not be a good time to sell or refinance the house to buy out the other spouse. Nevertheless, keeping the house may not be the very best idea. Sometimes the house is too big, too expensive, and too difficult for the spouse to maintain. As a "retirement plan", the house is often a money pit. As it grows older, the value may not increase as much as the owner predicted. After calculating long-term maintenance and selling expenses, the person may actually have a negative balance, compared with other investments. A better approach for many would be to sell the house and buy something more affordable; as their income improves, they may be able to trade up to another house or another location, should they wish to do so.


Like many topics, a myriad of inaccurate information abounds about divorce. I have found that accurate knowledge is a divorcing persons best ally to avoiding some of the nastiest errors. Take classes, read books and articles, and work with knowledgeable and reputable experts helps people to weather this complicated and emotional time. People should always review decisions they are making to include the long-term ramifications, in addition to the short run benefits.


Was this helpful? Like our site & let us know.

Related Articles


Start Colorado Divorce Start Your Colorado Online Divorce Today
Easy, Fast and Affordable with a 100% Guarantee.
Colorado Divorce Find Colorado Divorce Professionals in Your Area:
Join the Network
Colorado Divorce Products, Services and Solutions Colorado Divorce Products, Services and Solutions
Colorado Divorce Resources to Help You Through the Process.
Divorce and Custody Books Discount Divorce Bookstore
Over 100 Titles of the Best Books on Divorce & Custody.
Divorce Downloads Divorce Download Center
Instantly Download, Books, Manuals, & Forms.
Divorce Worksheet Free Colorado Divorce Worksheet & Separation Agreement
Your Guide to Get Organized and Put Everything in Writing.
   
Colorado divorce law requires a 90-day waiting period before granting a final decree of dissolution of the marriage. Most contested divorces in Colorado take at least 6-12 months. If the other spouse does not contest the divorce and the division of property, and there are no child custody or support issues, then a Colorado divorce may be obtained in as little as 90 days.
Divorce Lawyers & Mediators
 

Find Professionals

Easily Connect With a Lawyer or Mediator
Have Divorce Professionals from Your Area Contact You!
Enter Your Zip Code:

 

Start Your Divorce File for a Colorado Divorce

 

Settle Your Divorce Negotiate Your Colorado Divorce

 

Support Forum Colorado Support Forum


FEATURED TOOL - Divorce Financial Checklists (organize important data that you will be need for a successful divorce)


Limited Offer Women's Rights Manual For Divorce
Cover Price: $55.95
Your Price: $29.95
You Save: $26.00

"The Absolute Best Investment in Your Divorce"

Men's Rights Manual For Divorce
Cover Price: $55.95
Your Price: $29.95
You Save: $26.00

"Uncover Your Options and Unleash Solutions"