Colorado Family Law Matters -

While a divorce case is pending, one of the things the parties are tasked to do is come to an agreement on how marital debts will be divided. If possible, the party not responsible for paying the debt under the divorce decree will usually try to have the debt refinanced in the name of the other party.

In a recent case from Kentucky titled Howard v. Howard, 336 S.W.3d 433 (Ky. 2011), a divorcing husband and wife agreed that the husband would be responsible for paying off the loan on the family car after the divorce. The vehicle was not re-financed in and title was apparently not tranferred to the husband's name so that the husband would become the sole owner of the car, presumably because the vehicle was repossessed before the divorce decree was final. The parties also did not include a provision in their divorce agreement that the husband would hold the wife harmless for repayment of the car loan (i.e., making the husband responsible for paying off the debt in the event a creditor sought payment from his ex-wife).

After the divorce was final, the husband filed for bankruptcy under Chapter 7 seeking a discharge of all of his debts, including the car loan he had promised and was in fact ordered to pay off under the divorce decree. After the husband's debts were discharged, the creditor came after the wife seeking payment on the loan. The wife filed a contempt action against her former husband in which she asked the court to require the husband to pay off the car loan.

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Jeffrey Landers at Bedrock Divorce Advisors, LLC is a Divorce Financial Strategist who works exclusively with women going through financially complicated divorces. He has recently written about the tax implications of "alimony payments" (called maintenance in Colorado). In particular, Mr. Landers emphasizes the following considerations: 

• The federal tax treatment of maintenance is directed by the Internal Revenue Code, not by divorce agreements or court orders.
• Maintenance is typically taxable income for the recipient and tax-deductible for the payor as long as several conditions are met.
• Those who receive maintenance payments must report the full amount of the payment as income on tax returns. 
• The payor of maintenance must enter the social security number of the recipient on the payor's Form 1040, line 31b or a $50 penalty will be assessed and the deduction may be disallowed.
• The payments must be made pursuant to a written separation agreement or divorce decree entered by a court.
• Consider other alternatives to traditional periodic maintenance payments, such as lump sum payments or establishing an Alimony and Maintenance Trust. But be aware that each alternative has its own specific tax implications that should be reviewed with a tax advisor.

In a divorce, the parties can agree or a judge can order that one spouse pays maintenance to the other spouse for a limited period to allow a spouse sufficient time to retrain or re-integrate into the work force (rehabilitative maintenance). Permanent maintenance can also be agreed to by the parties or ordered by the court depending on each couple's unique circumstances. But regardless of whether maintenance is rehabilitative or permanent, care should be taken to properly structure the payments so that the parties' desired tax results are obtained.

Colorado has specific state-wide guidelines that are used in calculating a parent's obligation to pay child support. The purpose of the guidelines is to provide "an adequate standard of support for children, subject to the ability of parents to pay." C.R.S. § 14-10-115(1).

The child support guidelines are based on the parents' combined adjusted gross income. So the determination of each parent's gross income is a critical first step in the process.

Colorado's child support statute defines "income" as "the actual gross income of a parent, if employed to full capacity, or potential income, if unemployed or underemployed." C.R.S. § 14-10-115(3)(c). "Gross income" includes "income from any source," except for those specifically excluded by the statute. Questions often arise regarding whether the Social Security benefits a parent receives are included as "gross income" for child support purposes.

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Maintenance (formerly called "alimony") is defined as "support paid by one ex-spouse to the other as ordered by a court in a divorce (dissolution) case." Usually, it is the spouse with the higher income or earning potential who pays maintenance to the other spouse.

In Colorado, maintenance can be awarded to a spouse while a divorce action is pending (i.e. temporary maintenance) or after the divorce decree has been entered for "such periods of time as the court deems just" (i.e. rehabilitative or permanent maintenance). When determining whether rehabilitative or permanent maintenance should be awarded, a judge can order maintenance to be paid by one spouse to the other only if he or she finds that the spouse seeking maintenance:

(a) Lacks sufficient property, including marital property apportioned to him or her, to provide for his or her reasonable needs; and

(b) Is unable to support himself or herself through appropriate employment or is the custodian of a child whose condition or circumstances make it appropriate that the custodian not be required to seek employment outside the home.

After it has been determined that this maintenance threshold has been met, the court can award maintenance to an ex-spouse "without regard to marital misconduct, and after considering all relevant factors including:"

• The financial resources of the party seeking maintenance;
• The time necessary to acquire sufficient education or training to enable the party seeking maintenance to find appropriate employment and that party's future earning capacity;
• The standard of living established during the marriage;
• The duration of the marriage;
• The age and the physical and emotional condition of the spouse seeking maintenance; and
• The ability of the spouse from whom maintenance is sought to meet his or her needs while meeting those of the spouse seeking maintenance.

If the parties had not previously signed an agreement stating that maintenance would be "contractual" (i.e. non-modifiable), then the amount of maintenance awarded to an ex-spouse can be modified after a divorce is final but "only upon a showing of changed circumstances so substantial and continuing as to make the terms unfair . . . ."

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Stock options are usually thought of as being granted to the high level C-Suite employees of large corporations. But the reality is that stock options are increasingly being provided to compensate employees at various levels on the company organizational chart.

A stock option is defined as "a right granted by a corporation to officers or employees as a form of compensation that allows purchase of corporate stock at a fixed price usually within a specified period." In the U.S., stock options are typically granted to employees in one of two forms: incentive stock options or non-qualified stock options. Stock options are usually subject to a vesting period, which is the period of time during the term of the option grant that the employee has to wait until he or she is allowed to exercise the options. 

In Colorado, stock options are considered property, which means they are subject to equitable distribution among a divorcing couple depending on whether the options are classified as marital property or separate property. Marital property is presumed to be all property or assets acquired during the marriage unless an asset falls within certain exceptions. An asset a spouse acquired before the marriage is usually considered to be separate property, but it can be classified by a divorce court judge as marital property "to the extent that its present value exceeds its value at the time of the marriage," which means that the amount the asset has appreciated during the marriage is considered to be marital property. C.R.S. § 14–10–113(4).

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