Financial Advice for Separated Couples

You've separated from your spouse but you're not sure if or when you'll go through with a divorce. What if any financial moves should you make?

"That's a difficult situation because . . . there is a possibility that the couple will get back together. Hence, you wouldn't want to do anything irreparable," says Chris Chen, a Certified Financial Planner at Insight Financial Strategists in Newton, Massachusetts.

"However, it's common for separated individuals to end up eventually divorced," he adds. "In some cases, the separation can last a long time. One case I have seen, separation lasted for decades until the death of one of the spouses. So perhaps the key advice here is to avoid rash decisions."

Here are 10 financial tips that will help guide you as you take the steps to becoming separated from your spouse and creating a financial life of your own.

Now is the time to evaluate your financial life and make a break from your spouse.

"Gathering and organizing your financial documents is critical during a separation whether you proceed with divorce or reconcile," says Melissa Murphy Pavone, a Certified Divorce Financial Analyst and founder of Mindful Financial Partners in Westhampton Beach, New York. "This is often referred to as your financial affidavit."

According to Murphy Pavone, this affidavit includes bank statements, debt records such as credit card balances, mortgage documents, investment account statements, tax returns and the household budget.

"Being organized ensures you're prepared for negotiations or to make informed decisions about your finances," she says.

As you move forward with a life that is separate from your spouse's you'll want to establish a new budget for your new life.

"Separation often means a shift in financial responsibilities," says Leah Hadley, a senior financial planner at Intentional Divorce Solutions  in Middleburg Heights, Ohio. "Creating a budget can help you understand how your income and expenses may change and ensure you're prepared."

You'll want a separate account from your spouse to pay your personal bills, grab cash as you need it and deposit paychecks.

"If you're separated but unsure about divorce, finding the balance between protecting your finances and preserving the possibility of reconciliation can be tricky," says Andrew Latham, a Certified Financial Planner and content director at Supermoney.com in Rolesville, North Carolina. "Start by opening a separate checking account for your own income and expenses while keeping shared costs transparent to avoid unnecessary conflict."

Do you still wish to have your spouse as the beneficiary on a life insurance policy or a retirement plan? Think it over.

"Review — but don't rush to change — beneficiaries on life insurance or retirement accounts unless divorce seems likely," Latham says.

Take a look at all the credit accounts in your name, including the ones jointly held with your spouse.

"Pull your credit report to understand your financial standing and flag any joint debts that need monitoring," Latham says.

Separation is a good time to reach out for advice from an attorney or financial advisor. You don't have to figure this all out on your own.

"Consult a divorce attorney or financial advisor to explore protective steps that don't sever ties unnecessarily," Latham says. "The goal is to protect yourself financially without unintentionally steering the relationship toward divorce."

Car insurance is a big expense and one that you will want to separate from your spouse.

"For many married couples, car insurance premiums comprise a large portion of their monthly budget. Following a separation, if one spouse has moved out, they both need to have separate car insurance policies," says Said Israilov, a Certified Financial Planner and wealth manager at Israilov Financial in San Francisco. "If you are the owner of the policy (the Primary Named Insured), you need to inform the insurance company and request to have your spouse and their vehicle removed from the policy."

Why is it important to separate auto insurance policies?

"Having separate car insurance policies after separation prevents disputes over payments," Israilov says. "Additionally, if one spouse causes an accident, the other spouse could face increased premiums and potential legal liability."

Separation from a spouse is a time to build up financial accounts in your own name.

"Open individual accounts and establish financial independence while ensuring shared responsibilities like mortgage payments are met," Murphy Pavone says.

Protecting your financial well-being also means building up emergency savings.

"If you don't have one already, create an emergency fund to manage unexpected expenses that can arise," says Chris Powers, a certified financial planner and managing partner at Global Wealth Advisors in San Antonio. "We generally advise saving six months' worth of expenses."

You and your spouse are both responsible for the paying of these accounts, which include mortgages and credit cards, so agree together how they will be paid.

"Clearly, responsibility for something that you have both signed for will fall on both spouses," Chen says. "You need to agree with your spouse on how that joint debt will get paid, and when to communicate with the other spouse about the status of those accounts. You have to remember that if a joint goes into default, it will affect the creditworthiness of both spouses.

It doesn't have to be a legal document, but it should spell out key financial matters such as who pays which bills.

"A financial agreement during separation is critical for establishing clarity and minimizing conflict," Hadley says. "It can be a formal legal document or an informal understanding between the parties."

And it can cover a variety of financial matters.

"Some elements you may want to include are who pays which expenses, who is responsible for which debts, if temporary support is needed to cover basic living expenses during the separation, and who has access to which accounts. Be sure to clearly outline any limitations on withdrawals or spending," Hadley says. "Having this agreement in writing helps reduce misunderstandings."