In a world where relationships are evolving, the concept of separation while maintaining legal marital status is gaining traction. For many, this new arrangement is a “win” for several different reasons:
- It gives financial benefits to both partners.
- Separation allows for unique estate planning opportunities that divorce might negate.
- Couples who legally separate can retain certain government benefits that they may otherwise lose access to.
- Choosing to legally separate instead of divorce can sometimes give space for future reconciliation.
This decision isn’t one that couples take lightly, and it’s smart to explore the different financial and legal opportunities that choosing separation over divorce offers.
Finance tips delivered straight to your inbox.
What Is Legal Separation?
Legal separation is a nuanced concept. It differs significantly from divorce, providing couples an alternative for a redefined relationship while preserving certain benefits.
While the specific details can vary based on jurisdiction, the general concept involves a formal arrangement approved by a court that outlines the rights and responsibilities of each spouse during the period of separation. Key aspects of legal separation typically include:
- Living Apart. The couple physically lives in two different spaces, signaling a clear intention to live independent lives. You cannot legally separate but plan to still live under the same roof.
- Division of Assets and Debts. Legal separation often involves a formal agreement on dividing marital assets and debts. This agreement may be court-approved and can address property, finances, and other shared responsibilities.
- Financial Support. The agreement may outline provisions for financial support, such as spousal support (alimony) and child support, if applicable.
- Child Custody and Visitation. If the couple has children, legal separation agreements can specify arrangements for child custody and visitation rights.
In a legal separation, the couple remains married, and neither party can remarry during the period of legal separation. Some couples choose legal separation for religious or personal reasons, while others may see it as a practical step before deciding whether to pursue a divorce.
What Financial Benefits Come With Legal Separation?
In general, divorce proceedings are costly. This can put each individual relationship partner in a position where they must retain legal counsel, start filing taxes as a single filer, and potentially pay alimony or fully support themselves.
However, if a couple pursues legal separation, they retain some key financial benefits:
- Tax Benefits. If a couple who is legally separated chooses to continue filing taxes jointly, they could save a significant amount of money in comparison with single filers. They also are still eligible for certain tax deductions and credits. For example, in a legal separation, both parents may still be able to claim their children as dependents and take the Child Tax Credit. However, in a divorce, typically only the custodial parent is eligible for this credit.
- Preserving Marital Assets and Debts. Legal separation allows a couple to work through the division of assets and debt responsibilities. It can even help put a formal plan in place to mitigate the impact that each other’s debts have, whether separation is the long-term plan or a step toward a more permanent legal divorce.
In some ways, legal separation simply feels less financially binding than divorce does. Having more time and space to navigate how finances are handled for your family (whether you’re still together or separated) can create opportunities for both of you as you move through this season.
How Does Legal Separation Impact Estate Planning?
Legal separation also offers unique opportunities for estate planning and inheritance. Couples can explore strategic estate planning options, such as establishing separate wills and trusts, to protect family legacies and guide wealth distribution.
However, many couples who opt to legally separate instead of divorce focus on ensuring their spouse retains inheritance rights when they pass away. For families who want to protect their surviving spouse and children, even if they no longer have a romantic relationship, this may make the most sense. Legal separation also gives a surviving spouse more control over their situation if a partner passes away and more legal ground to stand on with potentially disgruntled family members.
A Continuation of Benefits
Maintaining eligibility for government programs is a practical consideration in legal separation which is often a deciding factor for some couples. This might include access to Medicaid and Supplemental Security Income (SSI), as well as benefits for veterans and military families.
It might also mean that your spouse and children stay on your health insurance or vice versa. For families who rely on this type of support and who want continued care for their children, this benefit of legal separation can’t be understated.
Unique Considerations for LGBTQ+ Couples
There are several unique considerations for LGBTQ+ couples who are considering divorce or separation.
Take for example, a spouse who comes out and enters into an informal agreement with their marital partner to legally remain married despite separating, primarily to preserve certain financial and Social Security benefits for the marital partner. Years later, the spouse has established a long-term relationship with a new partner, and they wish to marry. However, the original arrangement has created unforeseen legal complications, particularly regarding the new partner’s rights for hospital visitation and the marital partner’s default control over estate matters.
This is just one example of many that could play out in reality for a member of the LGBTQ+ community. You may find yourself married to your partner but ultimately seek to split up if the relationship goes south or you have irreconcilable differences.
However, financial benefits that both of you could potentially gain from staying married may outweigh the potential expense of getting divorced. Of course, as with any situation, having an open line of communication between you and your partner (and your financial and legal team) can do wonders. It can be helpful to remain open to different options and opportunities, and to stay curious about what feels best for you both – now and in the future.
Beyond Dollars and Cents
Looking beyond the financial and legal differences between separation and divorce, there’s a significant emotional and social component that many families take into consideration before making a decision.
Legal separation provides a less disruptive transition for children and can be less stressful for both partners involved. Many families who go through separation do so amicably and honestly want what’s best for their entire family – including each other.
Pursuing legal separation instead of more traditional divorce allows partners to prioritize their family, gain financial benefits they’d otherwise lose, and continue to operate as a unit even if there’s no romantic relationship.
Additionally, legal separation allows for flexibility and room for reconciliation. Couples can take the time needed for personal growth and change, assessing priorities and exploring the potential for future reconciliation.
By avoiding rushed decisions and regret, the emotional impact of an immediate divorce can be lessened, ensuring thoughtful consideration of long-term consequences. During this time of reflection, a legal separation can also put financial safeguards in place so that each partner is still protected during their season apart.
How to Set Up a Legal Separation
Filing for legal separation involves a legal process similar to filing for divorce but with a distinct purpose of establishing a legal separation agreement. The specific steps and requirements can vary depending on your jurisdiction, so it’s important to consult with a family law attorney or review the laws in your specific area. However, here is a general guide on how the process may work:
- Consultation with an Attorney. Before initiating the legal separation process, it’s wise to consult with a family law attorney. They can provide guidance on the legal requirements in your jurisdiction, explain the implications of legal separation, and help you understand your rights and responsibilities. If you and your spouse are pursuing this amicably, think about speaking to an attorney together to explore the best options for your family.
- Filing a Petition for Legal Separation. The process typically begins with one spouse filing a petition for legal separation in family court. The petitioner (the spouse initiating the legal separation) is required to provide specific information about the marriage, grounds for legal separation, and any relevant issues such as child custody, support, and property division.
- Service of Process. After filing the petition, the other spouse (respondent) must be formally served with a copy of the petition and a summons. This is often done by a process server or law enforcement officer, depending on local regulations.
- Response, Negotiation, and Settlement. The respondent has to reply to the petition. From there, both partners will enter negotiation and eventually settle on a legal agreement for their separation that outlines property division, spousal support, child custody, etc.
- Court Approval. In some cases, you may need a formal court hearing to get approval for your separation filing. In other cases, the request for approval can be submitted without going to court. It’s entirely dependent on your jurisdiction, so be sure to consult your attorney for what to expect.
It’s important to note that legal separation procedures can vary widely, and this guide provides a general overview. Consulting with a family law attorney is crucial to navigate the specific laws and procedures applicable to your jurisdiction and individual circumstances.
Looking for Financial Help?
Whether you are looking for a Certified Divorce Financial Analyst (CDFA) or a financial advisor to help coach you and your partner through the ramifications of legal separation, Abacus is here to help. Having a neutral third-party in your corner can help reduce financial anxiety and set your family up for long-term success. Learn more about working with Abacus by scheduling a call today.
Disclosure: This material is not intended to serve as personalized tax, legal, and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Abacus Wealth Partners, LLC is not an accounting firm. Please consult with your tax professional regarding your specific tax situation when determining if any of the mentioned strategies are right for you.
