If you believe the time has come to end your marriage, thinking about what comes next can feel overwhelming. Who do you need to talk to right away? How do you protect yourself and your assets, without alerting your spouse to what’s coming down the line?
While you’ve likely heard about couples separating before, how do you know if it’s right for you? Legal separation can actually be an effective first step in separating yourself (and your assets) from your spouse, before embarking on the long and complex divorce process.
Let’s take a look at what a legal separation is, and how you can use it to protect yourself financially during divorce.
What Is Legal Separation?
Legal separation is a court-ordered and recognized arrangement where spouses maintain their marriage status, but essentially lead separate lives. It’s commonly used when spouses need time away from one another to consider the possibility of divorce but aren’t ready to commit to the full process yet.
In some instances, couples even reconcile after a separation period and choose to live together again — meaning they forego the idea of divorce altogether. But in other cases, a legal separation can serve as a sort of trial period for divorce, or a period in which both parties work with their legal teams to get their ducks in a row before dissolving the marriage. Some states even require couples to file a legal separation before moving forward with divorce proceedings.
How Separation Protects Your Financial Life
Emotions are no doubt running high when you’re considering a divorce, which means dealing with the court system is probably the last thing you want to think about. But simply packing up your belongings and leaving the family home isn’t enough to separate yourself financially from your spouse.
Even if you’re out of the house, without a legal separation agreement, your spouse can still impact your financial standings. They can take out a loan in your name, run up a bill on your credit card, and do anything else they were able to when you were living together. If they choose to stop paying the mortgage, for example, creditors can still come after you (even though you’re no longer living in the same home).
But once a legal separation is issued, any income you earn is considered legally yours — and your spouse can no longer incur debt in your name. You’re able to protect yourself against creditors that otherwise would come after your accounts.
When legally separating, you and your spouse can put in writing who’s responsible for what debts (such as childcare costs or joint credit cards). In some cases, spouses even use their separation agreements as their eventual terms for divorce.
The Financial Benefits Retained During Separation
When you’re legally separated, you can continue enjoying some of the same benefits you would as a married couple (since in the eyes of the law, you are still legally married). These include:
Joint Tax Filing Status: Once you are divorced, you will not be allowed to use the married filing jointly option on your tax returns. But if you’re legally separated, you still have the ability to choose this option which, for many couples, reduces their tax obligation — especially couples with dependents.
Social Security: If a couple stays married for at least 10 years, they are entitled to certain Social Security benefits. Namely, if you divorce after being together for at least 10 years, you are entitled (at the age of 62) to Social Security benefits based on either your own work record or 50% of your ex-spouse’s work record, whichever is greater. For this reason, some couples who are close to the 10-year mark will choose to legally separate for a few years. Once they hit the 10-year minimum, then they will proceed with divorce.
Health Insurance: If one spouse does not have access to health insurance (if they don’t work, for instance), they may be able to stay on their spouse’s health insurance plan if they are legally separated. This is something you’ll want to check with your or your spouse’s employer, however, since some companies consider legal separation to be the same as divorce, which would make the divorcing spouse ineligible to stay on the plan.
You’ll want to check with your attorney for a full list of benefits retained during legal separation, as it can vary by state and benefits provider.
Your First Step? Building Your Support System
If you believe divorce is on the horizon, it’s time to start surrounding yourself with a team of supportive and knowledgeable professionals. Here at Northstar Financial Planning, we help women in transition gain financial independence, on their terms. Before making any major decisions about your financial life during divorce, we encourage you to reach out and speak to one of our Certified Divorce Financial Analyst (CDFA) professionals first.