I’ve talked in an earlier post about the legal status of a separation agreement and what it means to live as two separate households.
In this article I want to look at the period of separation from a financial point of view and provide a little information on how you can record your status as “separated” in a separation agreement and even divide your assets before you divorce.
Why is recording your status as "separated" important?
I say important here rather than necessary, because it isn’t a legal requirement that you have a separation deed or agreement.
But then it isn’t a legal requirement that you have a will or life insurance either, yet both are still important where you have property and people who depend on you financially.
Financial benefits of a separation agreement
- From April 2016, stamp duty changes mean that you or your spouse/civil partner pay an additional 3% stamp duty on the purchase of a second home.
But what if you are married but separated? What happens if you want to buy a home for yourself and your children to live in but your spouse is still living in the family home which is still owned in joint names; or is buying another home in his/her name?
Do you still fall foul of the stamp duty rules if you can show you are separated?
No. There is an exemption if you can show that you intend the separation to be permanent. Your relationship must have broken down.
A separation agreement is useful evidence of this.
- Child benefit rules also altered in 2013.
You are not entitled to receive child benefit if you or your partner (or spouse) earns over £50,000 per annum. There is an exemption if you are separated from your partner or spouse however. A separation agreement is useful as evidence of that.
- You may also be entitled to further benefits or universal credit once you can demonstrate you are separated. A separation agreement is a straightforward way of showing that you are.
Are there also emotional benefits to a separation agreement?
There often are, yes.
Recording the details of your agreement reduces stress and confusion, both for you, your children and often your wider family.
It helps to know where you stand and to be able to plan for the future.
Why not just start the divorce process?
The legal process of divorce is slow and adversarial. The laws are old. Reform is needed.
The recent case of Mr and Mrs Owens highlights the problems where the reason for the divorce is nobody’s fault.
If you don’t want to make up allegations of unreasonable behaviour, you face a wait of at least two years before you can start your “no fault” divorce.
How do couples deal with their assets before divorce?
Couples who choose to wait two years for a no fault divorce are often able to agree how to divide up their assets reasonably amicably. They often don’t need to apply to the court to decide for them nor to enforce the final division.
A separation agreement (also known as a deed of separation) records how they have done so, so that they can often draw a line under most or all of their financial responsibilities towards each other.
What goes into a separation agreement?
A separation agreement usually contains the following:
- some factual background details, such as relevant dates, ages, names
- details of any children
- the fact that the couple are now separated and wish to be treated as separated in any legal transactions
- factors which are relevant to the division of the assets -it is best to refer to any factors the court needs to take into account in any future divorce where appropriate
- important agreements about their finances both during the period between separation and divorce and beyond
How can a separation agreement reduce stress?
Couples who have lived together for a long time usually have intertwined finances.
Typically one person moves out of the family home before they have reached a financial agreement.
There are questions about who will pay the mortgage and when to sell the house.
During relationships we tend to share responsibility for household expenses. This is not always reflected in the legal status of some loans. For example, let’s say one person pays for a holiday on a credit card and the other partner or spouse helps to pay it back.
After separation the credit card holder may worry that the other person either won’t pay anymore or can’t afford to.
Uncertainty surrounding payment of the mortgage and bills usually leads to a great deal of stress for both spouses or partners, especially if there are children.
Stress leads to panic, anger – and often too expensive court applications.
Deciding to have a separation agreement is a positive step.
It focuses on resolving these issues in a positive way because the target is an agreement about how you propose to deal with the financial implications of living apart.
A separation agreement is more flexible than a court order. You can agree to amend or adapt it to suit your evolving circumstances over time.
When is the right time to prepare a separation agreement?
Couples use separation agreements:
- if their relationship has already come to an end; or
- they are going to try living apart for a while to see whether they want to make that separation permanent
Separation agreements offer reassurance during that transition period.
Even if you only have a temporary agreement, it is best to record this in writing.
A written agreement is often more reassuring than a verbal one.