EP 83: Should You Consider Legal Separation instead of Divorce?

Episode 83 of the Divorce and Your Money Show discusses legal separation.

Oftentimes, before committing to a divorce, you may consider a legal separation—which is a way to split up your life without getting legally divorced.  Be sure to check your state’s laws about the implications of legal separation, as they vary from state to state.

Separation agreements are often necessary. They resemble the legal negotiations for a full divorce.  However, separations can last longer than you might think, and you need to structure them appropriately.

There are many personal, financial, and legal reasons to consider a separation before a divorce.  For instance, separation can be a trial period before you commence with a full divorce.

Often, the issues that you negotiate about can be the blueprint for a more complex divorce.

You can avoid increased spousal debt by separating finances.  Alternatively, you can protect financial windfalls (including bonuses and inheritances) from being considered marital property.  A legal separation can have tax implications as well. Check out “Your Easy 2017 Guide to Taxes in Divorce,” which is coming in early 2017.

Other financial benefits of separation include health insurance benefits, social security benefits, and estate planning.  If you are on your spouse’s plan (or vice versa), there can be advantages to keeping the coverage intact.

If you remain married for 10 years, you are eligible for Spousal Social Security. Therefore, it can be beneficial to remain married—but legally separate— if you are close to the 10-year mark.

Finally, if you have a complex estate plan with many moving parts, it may be beneficial and cost-effective to be legally separated, rather than divorced.

Regardless, be sure to check with your state. When contemplating the full ramifications of a divorce, consider the implications of a legal separation.

Key Learning Points

  • States vary, but over 40 states have provisions for legal separation.
  • Non-Financial Reasons
    • Separation is a trial period to see if separation is something that you are ready for.
    • Separation can serve as a blueprint for the divorce proceedings.
  • Financial Reasons
    • Liability Protection – Safeguard yourself from your spouse’s debt.
    • Financial Windfalls – During the separation, protect bonuses or inheritances from being included as marital property.
    • Tax Implications – You can still file jointly, but filing as an individual can be helpful. (Look for the upcoming course!)
    • Health Insurance – Stay on your spouse’s insurance plan(s).
    • Social Security Benefits – If you are married for 10 years, you are eligible for Spousal Social Security.
    • Estate Planning – You can avoid updating a complex estate plan.

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