Child Support & Alimony After Retirement

Retirement is both an asset, to be divided at dissolution, as well as an income flow which will usually be factored in for purposes of maintenance and child support.

When a parent or former spouse retires, child support, and modifiable maintenance, are almost always going to be implicated, as the retirement income the person receives is typically lower than the salary from working. Moreover, in some situations previously-divided retirement accounts will not count as income.

And the court needs to consider whether the retirement was even appropriate, which generally means looking to see if the person has reached the Social Security Retirement Age.

Does Retirement Count as Income for Child Support Purposes?

Pension and retirement income counts as income for the purposes of calculating child support. C.R.S. 14-10-115(5)(a)(I)(H).

With respect to a retirement account such as an IRA, income/gains only count as income when the parent actually takes a distribution. C.R.S. 14-10-115(5)(a)(II)(E).

Payments from a defined benefit pension plan count as income for purposes of child support, even if the pension was awarded in the divorce (contrast this to maintenance, discussed below). In In re: the Marriage of Zappanti, 80 P.3d 889 (Colo. App. 2003), the father was awarded his railroad pension at dissolution, and the Colorado Court of Appeals held that the fact a retirement account was awarded at divorce did not preclude it from being treated as income as well when the payments were received.

The court may, but is not required to, consider the distribution which a parent could have taken but chose not to take if the parent:

1. Has reached the appropriate age for a distribution without IRS penalty,
2. Is not working full-time, and
3. Did not receive the retirement account as part of the division of marital property at divorce.

C.R.S. 14-10-115(5)(a)(II)(E).

Note that the exclusion of retirement income not distributed was a change to the statute in 2014. Previously,  interest and dividends that were earned by a retirement account, such as an IRA, would still count as income, even if the person were still working and could not withdraw the appreciation without incurring tax penalties.  See In re: Marriage of Tessmer, 903 P.2d 1194 (Colo. App. 1995).

Does a Pension Count as Income for Spousal Support?

Pension and retirement payments count as income for the purposes of calculating alimony, with caveats: “Pension payments and retirement benefits actually received that have not previously been divided as property in this action.” C.R.S. 14-10-114(8)(c)(I)(H).

So if one spouse receives the PERA retirement in a divorce, the other spouse is precluded from trying to assert a claim against those already divided funds for purposes of spousal support. And the payments have to be actually received, so capital gains or interest which are growing in an IRA or 401(k) behind the scenes, but prior to retirement age, will not count as income.

Are Employer Matching 401(k) Contributions Income?

Undistributed employer contributions to a retirement account are not income, In In re: Marriage of Mugge, 66 P.3d 207 (Colo. App. 2003), the father elected to participate in his employer’s voluntary early retirement program, and received $64,000 in a Voluntary Early Retirement Program (VERP) as a credit to his retirement account, which the father then rolled over into another qualifying retirement account.

Even though the father could have elected a lump sum instead, the court held this was not income for the purposes of child support:

“We discern no basis in § 14-10-115(7)(a)(I)(A) or prior decisions to consider unrealized income for child support purposes solely because a parent could liquidate an asset or change its character into an asset capable of producing income. Mother does not assert that father acted unreasonably or in bad faith. The fact that he had no discretion to treat the VERP benefit separately from the remainder of his retirement account suggests that he was not trying to avoid child support obligations.”

Mugge, 66 P.3d at 212.

A later Court of Appeals decision, citing Mugge, phrased it more succinctly: “Prior to actual distribution, employer contributions to a spouse's retirement account or pension plan do not constitute gross income for child support purposes.”  In re: Marriage of Davis, 252 P.3d 530, 534 (Colo. App. 2011).

Social Security is Income

Regular Social Security payments count as income, but there are a variety of rules depending upon the type of payment, and who is entitled to receive it. See the article Social Security, Alimony & Child Support for more details.

Retirement vs Voluntary Unemployment

What’s the difference between retirement and voluntary unemployment? The person’s age, and motive for retiring.  Everyone would like to have more time to spend with family, playing golf, or even watching TV, but judges have long rejected as not in good faith, decisions to retire early without good cause.

C.R.S. 14-10-114(8)(a)(II) includes as income for maintenance purposes a person’s “potential income, if unemployed or underemployed.”

C.R.S. 14-10-114(8)(c)(IV) provides: “If a party is voluntarily unemployed or underemployed, maintenance shall be calculated based on a determination of potential income.” The child support statute has a virtually identical provision. C.R.S. 14-10-115(5)(b)(I).

In both the maintenance (14-10-114(8)(c)(V)(B)) and child support statutes, if the employment decision was a “good faith career choice”, the person will not be voluntarily underemployed, except that the child support statute adds further direction to look both the motive, and the effect of the choice: “The employment is a good faith career choice that is not intended to deprive a child of support and does not unreasonably reduce the support available to a child”

Retirement Age in Colorado

What is the official retirement age in Colorado? In short, it’s whatever age the Social Security Administration deems as the normal retirement age for full benefits. Currently, for people born in 1960 or later, that is 67 years-old, but see this retirement age chart for people born prior to that.

C.R.S. 14-10-122(2)(b) provides: “A payor spouse whose income is reduced or terminated due to his or her retirement after reaching full retirement age is entitled to a rebuttable presumption that the retirement is in good faith.” And C.R.S. 14-10-122(2)(c) defines the term “full retirement age” as:

“the payor's usual or ordinary retirement age when he or she would be eligible for full United States social security benefits, regardless of whether he or she is ineligible for social security benefits for some reason other than attaining full retirement age. "Full retirement age" shall not mean "early retirement age" if early retirement is available to the payor spouse, nor shall it mean "maximum benefit retirement age" if additional benefits are available as a result of delayed retirement.”

A rebuttable presumption means the court is not required to accept a retirement after reaching the retirement age as good faith, but the other side has the burden of proving it was in bad faith. Practically speaking, that will be difficult to prove - the author has not seen a case where a judge has found retirement after reaching the retirement age to be bad faith.

The statutory change largely adopts the Court of Appeals holding in In re: Marriage of Swing, 194 P.3d 498 (Colo. App. 2008). There, the payor was “over the road” truck driver, and in order to have a more “normal lifestyle”, took a lower-paying local job a year before his planned retirement at age 65. The trial court reduced maintenance accordingly.

Analyzing cases from other states, the Court of Appeals created the following 2-part test, looking at the subjective intent behind the retirement, and whether the retirement was reasonable:

“a Colorado court may consider an obligor spouse's reduced income as a result of early retirement, and that if the court finds (1) the obligor's decision was made in good faith, meaning not primarily motivated by a desire to decrease or eliminate maintenance, and (2) the decision was objectively reasonable based on factors such as the obligor's age, the obligor's health, and the practice of the industry in which the obligor was employed, the court should not find the obligor to be voluntarily underemployed.”

Swing, 194 P.3d at 501.

No Automatic Maintenance Termination Upon Retirement

While the law provides that an income change due to a good faith retirement is sufficient to consider modifying or terminating maintenance, there is nothing automatic about it. First, the payor still has to file a motion to modify/terminate maintenance, and even then retirement alone won’t be sufficient - the payor’s overall income must have decreased enough to render the current maintenance award unfair.

In In re: Marriage of Thorstad, 2019 COA 13, the payor asked the trial court to terminate his maintenance obligation as he was in poor health and planning on retiring. The trial court did so, without providing the former wife with the opportunity to challenge the decision to retire, nor argue for a continuation of maintenance.

The Court of Appeals reversed, finding that there was no automatic modification or termination of maintenance upon retirement: “Because the presumption [of good faith] is rebuttable, the spouse who is receiving maintenance must have the opportunity to rebut the presumption.” ¶ 37.

The decision to retire was not conclusive on the issue of maintenance, but was instead the beginning of the inquiry, which needed to include:

1. Whether the decision to retire was in good faith, and
2. If so, then the financial impact of that decision was just one of the factors the court is required to consider when determining whether there was a substantial and continuing change in circumstances sufficient to modify or terminate maintenance.

Thorstad, 2019 COA 13 at ¶ 43.

Retirement as Basis to Modify Maintenance or Child Support

What does this mean? Simply that a retirement, even upon reaching the social security retirement age, is like any other change in circumstances - it may be a basis to modify, but it does not automatically trigger a modification or termination. The payor still has to satisfy the statutory requirements to modify maintenance or to modify child support.

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