If you are considering divorce but anxious about the financial repercussions, there’s another option that may have certain financial benefits. A legal separation has the same basic outcomes as a divorce, but you will still be able to share health insurance and retain the financial benefits of marriage. Perhaps just as importantly, you can still choose to divorce at a later time if circumstances change.
A family law attorney, like those at The Valley Law Group, can help you understand which option may work best for you. Start by examining our guide to the financial implications of divorce and legal separation.
Legal Separation vs. Divorce
While legal separation and divorce have many of the same general outcomes, they are two separate processes with different financial benefits.
Divorce
A divorce is the legal dissolution of a marriage. Marriage comes with many legal rights, such as the right to certain tax benefits and the ability to inherit property when a spouse dies, but divorce ends those benefits. Ending a marriage requires several legal steps, and there are some basic requirements you must fulfill to achieve a successful divorce.
Anyone seeking a divorce must meet certain residency requirements. At least one of the spouses must have lived in Arizona for at least 90 days. One spouse (the petitioner) must file a Petition for Dissolution of Marriage with the proper court in the county where they reside. After the other party (the respondent) is served and responds to the divorce petition, the divorce process begins.
Preparing for a divorce means preparing to make financial decisions regarding property division, child custody, child support, spousal maintenance if applicable, and more. These decisions are finalized by a divorce decree and are changeable only by a petition for modification.
A financial divorce checklist can include:
- Bank, Insurance, and Investment Statements
- Credit Card and Student Loan Statements
- Documents for Child-Care Costs
- Estate Planning Documents
- Income, Financial, and Employment Documents
Legal Separation
A legal separation may be a favorable option if you want to end your relationship but retain some of the financial benefits of marriage. Couples can also opt for a separation arrangement that allows them to live apart for a trial period but enables them to reunite if divorce is not right for them. In either case, legal separation proceedings are similar to those required during divorce.
One spouse files a petition for legal separation and has it served to the other spouse. As in divorce, hearings may determine temporary child support or parenting orders while the separation proceeds. During separation proceedings, spouses negotiate or mediate a separation agreement for property division and child-rearing responsibilities.
Once the separation is finalized, they will have divided assets, resolved financial connections, and established a parenting plan, just like in a divorce. The key difference is that legal separation does not dissolve the marriage. The couple remains legally married and cannot marry others; they can terminate the separation agreement at any time and return to being a married couple. Divorced couples must legally remarry if they want to regain marriage benefits.
It is possible for a legally separated couple to remain legally separated until death.
Financial Considerations in Legal Separation
Like a divorce, a legal separation requires the couple to divide community property equitably and make other important financial decisions.
Property Division
During a legal separation, negotiations or mediation can enable spouses to create a mutually agreeable division of community property and retain their separate property. These divisions can be formalized in a separation agreement. The separated couple can also work out agreements on how to divide expenses and pay for household bills. Once the legal separation is finalized, any new property or debt acquired by either spouse will be separate property.
Spousal Support
Spousal support, known as spousal maintenance in Arizona, can also be part of a separation agreement. Both parties can agree to spousal support, or the court may determine that spousal maintenance is needed to help one party maintain a certain standard of living they were accustomed to before the separation. When deciding whether to approve spousal maintenance, a judge may consider the duration of the marriage, the needs of both spouses, the standard of living established during the marriage, and each spouse’s earning capacity.
Tax Implications
When filing taxes, a legally separated couple may file as “Married Filing Separately” or “Married Filing Jointly. ” Either filing option carries tax benefits beyond those experienced by single divorced individuals. The standard deduction for married couples filing jointly is higher than that for single filers. The standard deduction for married couples filing jointly is $27,700, compared to $13,850 for single filers.
Financial Considerations in Divorce
The financial considerations surrounding divorce are similar, but there are some important distinguishing factors that differ from those for separation.
Property Division
The process of separating property in divorce is basically the same as when filing for legal separation. The estate is divided into community and separate property. Community property includes all assets and debts acquired during the marriage. The state views community property as belonging to both spouses, so it is divided equitably during a divorce. After the property division is complete, all new property and debts are separate property.
Spousal Support
As with a legal separation, a judge may order that one party pay spousal support. This can be done on a short-term or long-term basis. However, spousal support ends when the receiving party remarries, and long-term spousal support is rare except in situations where the receiving spouse is disabled and unable to earn their own income.
Tax Implications
Once a divorce is finalized, neither spouse can claim any tax benefits from marriage. Each must file as divorced until they remarry. Learn more about additional tax implications regarding child support and child tax credits below.
Child Support and Child Custody: Changes in Tax Status and Potential Impacts on Deductions and Credits
Child support and child custody matters are both addressed in a legal separation or divorce. The courts expect both parents to make arrangements to co-parent and financially support their children. Child support, parenting plans, and other parenting-related matters must be resolved before a judge will finalize a divorce or separation agreement.
These decisions can affect the tax status of parents during divorce and separation in the following ways:
- Whether paid during divorce or separation, child support is not tax-deductible for the parent who pays.
- Child support is not reported as taxable income for the parent who receives child support.
- While couples may continue to file joint tax returns during a separation, they must file individually after divorce.
- Only one divorced parent can claim child tax credit deductions. This is typically the parent who primarily cares for the child.
Health Benefits and Insurance Implications
Health benefits work differently for couples who are divorced or legally separated. A separated couple is still legally married, so they may remain on a family health insurance plan. A legally separated couple would still be eligible for a health savings account (HSA). Married or legally separated couples can contribute more to HSAs compared to single individuals, allowing for greater tax-free savings for medical expenses.
Any couple who divorces will not be eligible for a family health insurance plan, which often comes with benefits. If one spouse had coverage from a health insurance plan belonging to their spouse, they must find coverage elsewhere after a divorce.
Social Security and Retirement Implications
A legally separated couple could retain social security and retirement benefits. Spouses may be entitled to Social Security benefits based on their partner’s earnings record, which can be beneficial if one spouse has significantly lower lifetime earnings. A legally separated couple could also maintain joint retirement plans. As long as the couple doesn’t divorce, the surviving spouse could inherit social security and retirement benefits upon the death of their spouse.
Most retirement accounts are considered community property and are divided during a divorce. Still, the type of plan and whether it is employee-owned or employer-sponsored can make a significant difference in how it is divided. In addition, most divorcing couples utilize another court procedure called a qualified domestic relations order, or QDRO, to divide retirement accounts and move assets without triggering financial penalties.
Legal Separation Pros and Cons: Financial Perspective
If you and your spouse are planning to live separately, you may be wondering, “Is it better financially to separate or divorce?” As you can see, there are many legal and financial implications for choosing divorce over legal separation and vice versa. These pros and cons may help you make an informed decision for yourself.
Legal Separation Pros
There are many benefits to legal separation, including the following:
- You can respect religious beliefs that forbid divorce.
- Separation allows financial independence by keeping finances separate.
- You can reduce the immediate stress of negotiating property division.
- Legal separation also allows you plenty of time to finalize parenting plans and adjust child support.
- Legal separation also prevents the complications of step-parent involvement in parenting arrangements since spouses cannot remarry during the separation.
- While legally separated, you will still be able to enjoy tax, health insurance, and retirement benefits. Legally, you are still married, so you maintain all of the benefits of marriage without having to share your finances with your spouse.
- Legal separation provides flexibility, giving both spouses time to adjust to living apart while they contemplate whether to remain in that arrangement or pursue a divorce.
- Many of the steps required for a divorce will have been completed as part of the legal separation process.
Legal Separation Cons
Of course, legal separation is not the perfect solution for all couples.
- Legal separation does not allow parties to remarry unless they choose to pursue divorce.
- Rarely, legal separation can weaken claims for spousal support or equal parenting time if the separation period is prolonged.
- Some couples find that legal separation prevents closure and both emotional and financial independence.
Divorce Pros
While divorce and legal separation share many of the same pros and cons, there are a few benefits to divorce that extend beyond those of legal separation.
- During a divorce, more time is spent creating a final parenting plans that protects the rights of both parents to spend meaningful time with their children as well as the child’s best interests.
- Divorce provides finality by legally ending the marriage. Both parties can move on and remarry if they wish.
- Divorce allows for a clear division of assets and debts and relieves both parties of any chance of future financial obligations to each other.
- Divorce can permanently end marriages plagued by physical, mental, emotional, or financial abuse.
Divorce Cons
Similarly, while there aren’t many cons to divorce that aren’t also present in legal separation, they may be important to you.
- Divorce can be emotionally and financially taxing as the prospect of permanently ending the marriage can loom.
- Divorce may conflict with personal, religious, or cultural beliefs.
- While you can remarry if you regret the decision to divorce, it will require another legal marriage.
Seeking Professional Guidance: When to Hire A Divorce Attorney
Consulting an Arizona divorce or legal separation attorney can help you determine which option best suits your individual needs and circumstances. Although a legal separation does not irrevocably dissolve a marriage, it’s wise to wait to pursue separation until you have thought the matter over carefully and consulted with an experienced family law attorney. An attorney can review the circumstances of your life and listen to your goals before providing advice on which open may be the right one for you.
For example, if you or your spouse is seriously ill and requires stable health insurance, legal separation may be a better option. If you are ready to move on with your life and prefer a permanent arrangement to divide your assets and debts and financially untie yourself from your partner, divorce is likely the better choice. Both situations, along with many others, require you to examine your personal, financial, and life goals, as well as which decision best serves the interests of your children.
Consulting with an attorney at The Valley Law Group about these and other personal aspects can help you make an informed decision about which path will help you reach your goals.
Divorce vs. Legal Separation FAQs:
The decision to end a marriage is never easy. Arizona offers multiple options, including divorce, annulment, and legal separation. Before choosing a path, it is best to consult with a family law attorney so you understand the benefits and potential drawbacks of each option. The divorce and legal separation attorneys at The Valley Law Group have provided these common separation and divorce questions.
Schedule Your Divorce vs Legal Separation Consultation Today
Divorce and legal separation can impact your personal life and your finances. When choosing to divorce or separate, you should fully understand the financial implications of the decision. Although divorce and legal separation are similar, separation can allow you to maintain financial situations like shared health insurance tax benefits.
Those are just some of the many factors that should be considered with the help and legal counsel of an experienced family law firm. The Valley Law Group has decades of experience navigating divorce and legal separation for our clients. We offer private consultations and personalized advice that can help you decide which option serves your long-term goals.
It’s important to learn all you can about legal separation and its financial impacts before filing. Schedule your consultation to learn about this essential option and how you can benefit from it.
Jonathan Roeder, Founder/Director of Marketing of The Valley Law Group, is an Arizona native who has dedicated his life and career to the service of others. After graduating salutatorian of his high school class, Jonathan attended beautiful and prestigious Pepperdine University, where he majored in Political Science. During his tenure at Pepperdine University, his passion for helping others grew after securing a clinical position with a residential treatment center for juveniles with substance addictions. Post-graduation, Jonathan returned to Arizona and served as a residential manager for mentally and physically disabled homes.
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