Meet Christine and Jake — a hypothetical composite couple who incorporates many of the situations I have seen and heard as a CDFA. Christine has long known that her marriage to Jake is essentially over. When he got an apartment in town, it was so he wouldn’t have to drive home overtired after long days at work. He still came home most weeknights and every weekend. But, as they argued more frequently, he spent more time there – and Christine found that she preferred it that way. Eventually, most of his stuff was out of the house, and they’d agreed that living apart was better for them. That was so long ago that if you asked her precisely when they separated, she couldn’t say.
While not motivated to divorce, Christine and Jake have no desire to revive their marriage, either. They’ve realized their basic incompatibility and become comfortable with separation. Even when Christine hears that Jake is seeing someone, she doesn’t really mind. She’s not been entirely alone herself, lately. Living apart, she thinks, is the best of both worlds.
So, readers, what do you think? “Good for her!” Or, “What is she thinking?”
I can think of many things that could go wrong with this arrangement, and you probably can, too. As a Divorce Financial Strategist™, I’m most concerned that Christine is setting herself up for financial disaster. A long-term separation without a formal legal agreement is asking for trouble. Let’s dive into Christine’s case to see why that’s so.
Being Out of the Loop Financially Can Cause Trouble
Christine has no control over what Jake does with their money, and what she doesn’t know can hurt her. Living apart, Christine is totally out of the loop, financially. She has no idea that Jake got a major bonus last year — in fact, she assumed that because of the economy, there wasn’t a bonus at all. She also doesn’t know that he purchased an income property, using marital assets for the down payment. In most Community Property states, Christine may be just as responsible for that debt as he is. Being on good terms doesn’t mean Jake won’t make foolish financial decisions while they are separated. And, if he does, she’ll bear the consequences.
Jake knows divorce is inevitable, and is planning for it, financially. Neither spouse feels urgency to divorce, but Jake recognizes that someday it will happen. He’s thinking, among other things, of the years he’s made do with the small apartment while she’s enjoyed the marital home. It’s beginning to seem fair to him to keep some assets hidden, so that they won’t become part of a divorce settlement. Christine will miss signs that Jake is hiding marital assets. For example, she doesn’t know that he “sold” his expensive boat to his brother for a pittance, who will “sell” it back to him once the marriage is legally dissolved.
And if Jake’s financial status takes a dive, Christine is out of luck. One reason it’s been easy for Christine to live a comfortable separated life is that income has never been a problem. Jake’s made excellent money his whole career, and has taken pretty good care of her. Complacency, though, is foolish. If Jake lost his job, became ill or disabled, or experienced other drastic changes during their prolonged separation, the amount of alimony and/or child support she could expect to receive would be significantly affected.
Alimony “reform” laws are also working their way through state legislatures. Divorce laws vary significantly from state to state. Many states have recently passed alimony reforms which severely limit the amount and duration of support that judges can award. During their long-term separation, such limitations could be passed where they live; or, Jake could move to a state which has such laws, and have plenty of time to establish the 6-12 months’ residency that most states require to file for divorce.
Christine’s standard of living has lowered. While everything has stayed comfortable for the most part, there have been changes in Christine’s lifestyle during her separation from Jake. For example, there used to be a new car in the garage every couple of years, but she’s still driving the six year-old Volvo. Appliances and fixtures in her home are becoming dated, and she’s not sure he’d be willing to give the house a makeover. She doesn’t feel as free to make the kinds of purchases she once did, especially the vacations they used to take and the designer clothes she used to buy.
Lowered living standards will make it more difficult for Christine to get alimony based on her previous marital lifestyle. She’s been making do with less, so Jake can argue that she doesn’t need as much to live on as she had while they were together. Since it’s been going on for years, a judge may likely agree.
Christine is about to meet someone new… and Jake already has. Where romance is concerned, none of us can see what lies just around the corner. Christine is about to fall in love, and she’ll want a future with that new person. Beginning this relationship while still legally married to Jake may make her divorce settlement negotiations with Jake more acrimonious. While Jake doesn’t want to remarry, he doesn’t stay alone for long, either. Christine doesn’t realize how much of their money he’s spent buying girlfriends gifts and taking them on expensive vacations.
If Jake gets into legal financial trouble, Christine will likely be liable too. Without an agreement that specifies otherwise, if Jake is sued, finagles joint tax returns, or engages in other financial misdeeds, Christine’s assets are at risk. As Marilyn Chinitz, Partner at Blank Rome, explains, “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. 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.”
Silence may be golden, but it can also be expensive. Their separation is amicable, but what happens if communication breaks down? With no separation agreement, Christine has nothing to rely on if Jake stops making deposits in their account. “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 says. “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.”
Better to Get on With Her Divorce, and Get on With Her Life
We’ve seen that Christine is taking huge financial risks to avoid the short-term unpleasantness of the divorce process. She’s also depriving herself of a new beginning.
Chicago family law attorney Debra DiMaggio says divorce can be liberating. “If you stay true to your heart, you will exit your marriage when your needs are not being met, when you’re extremely unhappy and/or when you know that staying in the marriage is futile,” she explains. “The peace of mind, the freedom from anxiety and stress, the health benefits, are factors that one cannot put a price tag on… most litigants proclaim after the judgment has been entered that they should have filed for divorce much sooner.”
Whatever your reasons for putting off divorce, I urge you to beware the pitfalls of a long separation. Think Financially, Not Emotionally®, safeguard your assets and protect your financial future.
Jeffrey Landers is a member of the DailyWorth Connect program. Read more about the program here.