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Colorado court clarifies important property division issue in divorce

Coloradans who face divorce and have significant property interests on the line are subject to complex legal standards that determine who gets what, and how much sometimes very valuable property is worth in the equation.

A recent decision of the Colorado Court of Appeals sheds light on an important property division issue in divorce: how a gift by a third party during the marriage is classified as marital or separate property when it impacts the value of a joint asset.

In re the Marriage of Krejci
John and Emily Krejci ‘s divorce was granted by the Larimer County, Colo., District Court and each spouse challenged particular judicial findings about property distribution and income on appeal. The court of appeals agreed with the trial court on some issues and disagreed on others, and sent the case back down to the lower court for further consideration consistent with the appellate opinion.
This article will consider one of the important matters considered in the Krejci case.

Is property marital or nonmarital; that is the question.
Property division in Colorado divorce depends on whether property is “marital” or “separate” (also called “nonmarital”). Even this property characterization issue can be complex and nuanced, but basically property is presumed to be marital and therefore subject to division in divorce when the asset is acquired between the date of marriage and the date of final divorce, regardless of in whose name the property is titled.

But that marital-property presumption can be rebutted by showing that the property is separate for several reasons such as it having been a gift, bequest or inheritance to only one spouse; having been acquired by one spouse by an exchange of other nonmarital property; having been acquired by one spouse after legal separation; or having been classified as separate by legal agreement between the spouses like a valid premarital agreement.

Mortgage payments by third party
In the Krejcis’ situation, the husband and wife bought their home in joint title and with both as debtors on the mortgage. The wife’s mother later paid off that mortgage. There was conflicting evidence of whether or not the mother intended the gift of the mortgage payoff to be just to the wife separately or to both of the spouses jointly. The trial court found the mother’s contribution to be part of the daughter’s inheritance and therefore that part of the home’s equity to be the separate property of the wife not subject to division with the husband in divorce.

However, the Court of Appeals as a matter of first impression in Colorado held that when a third party makes a gift that increases the value of jointly held marital property, it is legally presumed that the gift was “to the marriage,” meaning that it becomes marital property to be divided, rather than held separately by either spouse. This presumption can be rebutted by “clear and convincing evidence.”
The appellate court ordered the trial court to reconsider this transfer of money by the mother to pay off the mortgage in light of the clarified presumption of marital property, and whether clear and convincing evidence rebuts it. The trial court was instructed to entertain more evidence about the mother’s intention with her gift if necessary.

Legal Advice is Crucial
Anyone in Colorado who faces divorce and has significant property that will be at risk in the dissolution of marriage should speak with an experienced Colorado family lawyer about complex matters of property classification, valuation and division. In light of Krejci, issues may be particularly legally and factually complicated if third parties made gifts or left inheritances during the marriage that may have impacted the value joint marital property.

Lynn Landis-Brown, P.C., represents clients in the Pikes Peak area, Front Range area, and Rocky Mountain area of Colorado, including Colorado Springs, Castle Rock, Monument, Woodmoor, Broadmoor, Manitou Springs, Fort Carson, Fountain, Cimarron Hills, Black Forest, Canon City, Woodland Park, Cripple Creek, Victor, Parker, Pueblo, Peterson Air Force Base, Schriever Air Force Base, Cheyenne Mountain Air Force Station; United States Northern Command (NORTHCOM), Northern American Aerospace Defense Command (NORAD), United States Air Force Academy (USAFA), El Paso County, Teller County, Douglas County, Adams County, Elbert County and Fremont County.