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The financial dangers of separation without divorce

Amelia Murray
Divorce can be expensive - but a separation can leave your finances at risk - Getty Images

While divorce will for most people trigger enormous emotional and financial stress, separating without the formality of divorce can also be financially disastrous.

This was highlighted in a recent case concerning a couple married for only three weeks and separated for almost 30 years afterwards. Litigation is ongoing.

The marriage lasted barely a month in 1989. They then split and became estranged. The husband died in 2011 - something the wife discovered only last year when she hired investigators - and a dispute has resulted over her claim to some of the estate.

A judge ruled that as they were still married when the husband died she could indeed have a claim.

Lawyers say the case highlights one of many dangers financial dangers of an informal separation.

Home rights

One widely-overlooked legality is that both parties have a right to live in the house they share after separation.

If one person moves out they are allowed to come back and are free to stay when they choose, said Hazel Wright, a partner and family mediator at Hunters Solicitors.

And the partner who stays in the house is not allowed to change the locks.

"The only way to remove this right is through divorce or an injunction," said Ms Wright.

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Shared accounts, debts and assets

Separated couples must also be aware that until they are divorced, their finances remain linked.

Spouses or civil partners jointly responsible for a mortgage will both be at risk if one party moves out and stops paying their share.

Ms Wright said: "It may be that the person who is staying in the home will want to keep up with the mortgage payments and the party who has moved out and has to pay rent will ask why they should.

"If the payments stop the house could be repossessed and both individuals will see their credit rating destroyed."

If one person wants to buy a home, whilst still owning the former family home, they will have to pay the 3pc levy for second homes, unless they are divorced.

Access to joint bank accounts or shared credit cards will also continue unless the provider is notified. 

When told about the separation, the bank can freeze the funds in the account until the next steps are discussed. The lead holder of any credit card can ask for the second party to be removed or request the card be cancelled.

Post-separation wealth

There are also consequences concerning assets built up or eroded after separation.

For example, if one party goes wild with their spending and significantly diminishes their assets over a number of years, their spouse may be ordered to assist them in rebuilding their finances when divorce settlements are reached. 

Graham Mills, a 50-year old surveyor,  is currently fighting an appeal in just such a situation, after a court ordered him to pay increased income to Maria Mills, 13 years after their divorce and split of capital assets.

It heard how Ms Mills had made "poor financial decisions" through a series of “unwise” property purchases, and had spent all her money. He is attempting to raise money to further challenge the decision.

The court ordered that Graham Mills increase the maintenance he pays to his ex-wife years after the divorce because she was deemed to be in need Credit: Christopher Pledger

If one person increases their wealth or builds up their business during the period after separation, this will have to be disclosed when the divorce proceedings take place.

This wealth is referred to as "post-separation accrual" and may not form part of the settlement, unless the court decides the other party is in need.

After death

An individual has the right to claim against the estate of their spouse or civil partner even if separated and could demand a continuing income in addition to a "chunk of the capital", said Ms Wright.

The danger here is that the estate cannot be finalised if the executor does not know how much income is required. This is a real risk in long term separations, according to Ms Wright.

In these cases, the other beneficiaries would need to "buy the partner off". Instead of offering a continuing income, the spouse's share might need to be capitalised.

Ms Wright said it was crucial to make a will. Those who have an estranged spouse should use it to explain why they do not want them to be a beneficiary.

For example, reasons could include if the deceased has a new partner, family or dependents which they want to leave their estate to.

A halfway house

Ms Wright suggested that a judicial separation, a more formal agreement made by the court, could be an option for couples wishing to split but not divorce, perhaps where it is financially beneficial to remain married.

She said it was "almost" a binding financial arrangement which would allow couples to divide assets and property, but no pension sharing can take place.

Couples are not permitted to remarry until they get a divorce through the court.

Situations change and those who remain separated and run a real risk to their finances should they start new relationships, become a part of a new family or grow new businesses.

Ms Wright said: "It's so important for couples who split up to sort out their relationship before moving on and starting their new life."

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