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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?

Legal separation may be a good financial option for you if you need to:

• meet the 10-year requirement for social security benefits. If a marriage has lasted at least 10 years, a divorced spouse who has not remarried is entitled at age 62 (with various other requirements) to social security benefits equal to the greater of: 1) those based on her (assuming she is the lesser earning person) own work record or 2) 50 percent of what her ex-husband is entitled to based upon his work record. Because of this law, many people who have been married for seven or eight years will separate until they cross the 10-year threshold – then, they get divorced. (Please note: The amount of your social security benefits will be reduced if you opt to take them prior to your normal retirement date. So, although you may be eligible to start receiving benefits at age 62, depending on your circumstances, you may want to delay doing so until your normal retirement age or beyond. You can actually receive more for each year you delay post retirement age up until age 70.)
• continue receiving health insurance benefits under your husband’s plan. Naturally, once a couple is divorced, most employer health plans will no longer cover the employee’s ex-spouse. Separating, but not divorcing, may solve that problem –although you’ll have to carefully check the fine print in your husband’s employment benefit package to know for sure. Some employers view a legal separation the same as a divorce and will deny benefits accordingly.
• take advantage of potential tax benefits from filing jointly. Many couples assume they will save money by filing joint tax returns, so they separate, but do not divorce, in order to preserve that right. In addition, there also may be estate-planning implications, such as preserving the marital deduction. However, please don’t let assumptions like these lead you into trouble. Federal tax law in this area is quite complex, and then it becomes even more so because the IRS usually follows state law for determining marital status. In other words, whether or not you are considered married or unmarried will depend upon complicated laws at both the state and federal level. For example, according to tax law, an individual legally separated from his/her spouse under a decree of divorce or a decree of separate maintenance shall not be considered as married. But, not every state allows for a decree of separate maintenance; if you live in one of those states, you are still considered married until your divorce is final. You need to ask your attorney and/or tax advisor whether your current legal status meets the definition of a decree of separate maintenance.
• retain certain military benefits.
• pool certain resources. For some couples, maintaining two separate households is simply too expensive. Some decide to divide their home into “his” and “her” areas, so they can maintain a certain lifestyle (albeit one that’s now separate).  However, a decision to pool certain resources is not necessarily straightforward. In the case of alimony, for example, the IRS maintains that: “Spouses cannot be members of the same household. Payments to your spouse while you are members of the same household are not alimony if you are legally separated under a decree of divorce or separate maintenance. A home you formerly shared is considered one household, even if you physically separate yourselves in the home. You are not treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment.” In other words, alimony would not be tax deductible by the payor, if they are living in the same household.

Are there other reasons to remain separated rather than divorce?

Yes, of course. Not everyone opts for a legal separation based solely on financial reasons. In some cases, other considerations come into play. For example, some couples remain separated for religious reasons. One spouse, or both, may come from a religious background that frowns upon divorce. Separating, but not divorcing, may be the “ideal” solution for them. Other couples may find that they still love each other, but just can’t live together. Separation may be the optimal choice for them, too.

As you can see, the decision to legally separate rather than divorce can be quite complex. Weigh your options carefully and consult with qualified divorce professionals so you can make smart choices that will help keep you financially secure both short- and long-term. Or, put another way:

“If it’s Splitsville, do it wisely and make certain you safeguard your assets and property protecting yourself for the future,” Marilyn concludes.

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Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com ), a divorce financial strategy firm that exclusively works with women, who are going through, or might be going through, a financially complicated divorce.

He also advises happily married women who have seen their friends blindsided by a divorce initiated by their husbands and wonder (wisely) how financially vulnerable they’d be in that situation. Jeff developed the nation’s first Just in Case(TM): Secure Your Financial Future, a one-hour program, which quickly shows married women how to be prepared in the event of a future divorce with immediate, practical steps. He can be reached at Landers@BedrockDivorce.com.

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