When a married couple in California decides to part ways, they have two primary legal options: divorce or separation. Each path has distinct financial implications, which can significantly affect both parties’ future economic stability. Understanding these distinctions is crucial for making an informed decision. Below, we explore the financial differences between divorce and separation and what individuals can expect from each process.
Definitions and Basic Differences
Divorce is the legal dissolution of a marriage by a court. Once finalized, the marriage is permanently ended, allowing both individuals to remarry. It typically cannot be reversed without the couple remarrying. Divorce normally involves the division of assets and debts, determination of alimony (spousal support), and, if applicable, child custody and support arrangements.
Legal separation allows a couple to live apart and formalize arrangements for finances, child custody, and support without ending their marriage. Couples remain legally married, meaning they cannot remarry unless they proceed to divorce. The separation can be reversed at any time should the couple reconcile because they stay married to each other. However, it can also be used as the basis for a divorce should the spouses decide to end their marriage for good.
Process and Requirements
The processes involved in divorce vs. legal separation are similar, as they cover many of the same issues. However, some key differences can substantially alter the outcome. These differences include:
- Residency Requirement: Legal separations have no residency requirement; either spouse can file for legal separation immediately upon moving to California. In contrast, before filing for divorce, at least one spouse must have been a resident of California for six months and a resident of the county where the divorce is filed for three months.
- Mandatory Waiting Period: Legal separations do not have a waiting period in California. As soon as the couple agrees on a settlement, the separation can be finalized. Meanwhile, divorces are subject to a six-month waiting period in the state; even if a couple agrees on every aspect of their split, the court may not finalize a divorce until at least six months after the divorce was initially filed.
As a result, couples who are ending their relationships amicably often find that legal separations are faster and more efficient than divorces. However, this is just one consideration regarding the end of a marriage. For many people, financial concerns are the primary factor in deciding how to proceed.
Financial Implications of Divorce vs. Legal Separation
The root of many differences between divorces and separations is marital status. Let’s examine five circumstances where the method of ending your relationship may or may not impact your finances:
1. Asset Division
In a divorce, California’s community property laws require an equitable division of all assets and debts acquired during the marriage. This includes real estate, investments, retirement accounts, and personal property. Each spouse typically receives half of the community property, though this can be adjusted by mutual agreement or court order.
In a legal separation, assets and debts are typically divided similarly to divorce. However, because the couple remains married, they can maintain certain benefits, such as health insurance, which might otherwise be lost in divorces. That can be a substantial consideration, particularly if one spouse does not have access to coverage through an employer.
2. Spousal Support (Alimony)
Spousal support can be awarded in a legal separation, just as in a divorce, to ensure that the lower-earning spouse can maintain a similar standard of living. The amount and duration depend on factors such as the length of the marriage, each spouse’s financial needs and abilities, and the recipient’s efforts to become self-sufficient.
3. Child Custody and Support
If relevant, divorces establish child custody arrangements and child support obligations during both divorces and separations. Child support is calculated based on both parents’ incomes, the amount of time the child spends with each parent, and other relevant factors. The legal separation agreement or divorce settlement will outline these responsibilities.
4. Taxes
Taxes are one of the areas where separations and divorces can have substantially different outcomes. Divorce changes each party’s tax filing status to single or head of household, if applicable. This can lead to substantial tax penalties for the higher-earning spouse if they are placed in a higher tax bracket as a result. In contrast, legally separated couples may continue to file joint tax returns if they choose, which can sometimes result in tax benefits.
It’s important to note that alimony payments are no longer tax-deductible for the payer nor taxable income for the recipient for post-2019 divorces and separations. Child support payments are not tax-deductible or taxable.
5. Retirement Plans
Finally, retirement accounts such as 401(k)s and IRAs are subject to division. A Qualified Domestic Relations Order (QDRO) may be required to divide these accounts without incurring penalties.
During legal separations, retirement accounts are divided similarly to divorce. However, because the couple is still legally married, there may be additional considerations for how future contributions and benefits are handled.
Making the Decision
Choosing between divorce and separation depends on individual circumstances, goals, and financial situations. Here are some considerations:
- Desire to Remarry: If either party wishes to remarry, divorce is the only option.
- Religious or Personal Beliefs: Some may opt for separation due to religious or personal beliefs against divorces.
- Health Insurance: Legal separation allows the couple to remain on each other’s health insurance policies, which can be a significant financial consideration.
- Financial Interdependence: If the couple has complex financial ties or businesses, they might choose separation to retain some benefits of marriage while living apart.
Regardless of the circumstances, it is worthwhile to consult with an experienced family law attorney to determine the best path forward for ending your relationship.
Making the Best Move Forward for Ending Your Marriage
Both divorce and separation come with distinct financial implications that can affect the future stability and quality of life for both parties. Understanding these differences is essential for making an informed decision. At Flicker, Kerin, Kruger & Bissada LLP, we are committed to guiding our clients through these challenging decisions, ensuring they are well-informed and prepared for the financial changes ahead. Whether you are considering divorce or separation, our experienced attorneys can help you navigate the complexities and protect your financial interests.
