Legal Separation or Divorce: Which is Better Financially?

by Jeffrey A. Landers • Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC
Photograph: iStock

We’re all familiar with couples who decide to live separately for awhile before actually getting divorced. And typically, these couples use this “trial separation” to decide whether or not they want to pursue formal legal action.

These days, however, more and more couples are deciding to remain separated, rather than divorce –even after they know their marriages are fractured beyond repair.

Why would a woman make this choice? What reasons could there possibly be to live apart from a spouse, and yet remain married?

In many cases, it boils down to money. You see, sometimes opting for legal separation rather than divorce is a good financial decision.

But, before I discuss the possible financial benefits of a legal separation, let me clarify a few basic points.

What is a legal separation agreement?

As a divorce financial strategist, I often recommend that if you are going to live apart from your husband beyond a reasonable trial period, you obtain a legal separation agreement –which is a legally binding agreement between you and your husband to resolve issues such as the division of assets and debt, alimony/spousal support, child support and visitation.

As Marilyn Chinitz, Partner at Blank Rome, explains, a legal separation agreement can help you mitigate some financial risk.

“Although separating certainly can have benefits, living apart from your spouse without a formal written separation agreement can put you at risk. If you separate, you still remain liable for your spouse's debts and legal issues in which they are involved notwithstanding the fact that you are not living together,” she says. “A written separation agreement would appropriately address those issues providing for indemnification for example, or limiting your liability for debts incurred by your spouse during the separation. If your spouse fails to pay certain marital debt, because you are still married although not living together, the creditor can seek remedies against you for the joint debts. Informal separations without a document detailing the terms of your separation, that is , how you will share the marital assets, what do you do about joint credit cards, who pays maintenance and how you will distribute assets acquired during the separation, can cause difficulties down the road leading to litigation.”

What’s more, some people remain separated for months or even years, so it’s essential that you protect yourself upfront and have all the necessary issues settled and agreed to in writing. In order to move forward, you need to know who gets which assets, who is responsible for debts, how much alimony is to be paid and for how long, etc. The legal separation agreement helps settle these issues, and if you ultimately decide to divorce, it can easily become your divorce settlement agreement.

“Indeed, as time goes on, communication and cooperation with your estranged spouse may no longer exist. Your agreement should give you ready access to liquid assets- you may need these assets to pay bills,” Marilyn explains. “Most importantly, if you separate without an agreement, you may not receive your share of the marital assets acquired which may be depleted or lost because you were unaware of how your estranged spouse was managing the funds or marital business.”

Does my state recognize legal separation agreements?

Divorce laws vary from state to state, and so it’s no surprise that regulations governing legal separation vary from state to state, too. In general terms, each state falls into one of three broad categories:

  • Some states require a legal separation before you can file for a divorce.
  • Other states recognize a legal separation, but do not require it.
  • A few states neither require nor recognize legal separation.

Obviously, it’s important to get the advice of a divorce attorney in your state to determine if a legal separation agreement is a viable option for you.

When might a legal separation be a better financial choice than divorce?

First Published January 13, 2012

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