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Legal Separation


Legal Separation is a term used to describe a situation where a married couple decides to live separate lives, but remains legally married. This is different from divorce where the marriage is dissolved. It can involve legal agreements concerning division of property, child custody, and support while maintaining marital status.


The phonetic pronunciation of “Legal Separation” is: /ˈliːgəl ˌseprəˈteɪʃn/

Key Takeaways

  1. Legal Separation is Legally Binding: Just like a divorce, the process of legal separation involves the court system. The couple agrees to live separately and makes official arrangements for things like child custody, child support, spousal support, and property division. Any decree or judgment passed by the court is legally binding.
  2. Financial Independence is Established: In legal separation, the couple lives separately but remains legally married. This means that they are their own separate financial entities. Any debt, credit, assets accumulated after the legal separation will be considered as the responsibility of the individual, not the couple.
  3. Possibility for Reconciliation: Unlike divorce, legal separation keeps the option of reconciliation open. If the couple decides to reconcile, they can. The legal separation agreement can be nullified, and the couple can resume their marital status. In other words, if you’re unsure whether you want to completely end your marriage, a legal separation might be the right choice.


Legal separation is an important term in business/finance as it pertains to the division of financial responsibilities and assets between two individuals, typically spouses, who decided to live apart without divorcing. This situation could have significant financial implications. For instance, a legal separation can play a large role in determining ownership and responsibility for debts or assets acquired during the separation period. Without a legal separation, creditors could still consider both parties jointly responsible for debts. It also offers legal protection to both parties regarding property rights and spousal support, safeguarding individual interests while upholding financial obligations. Thus, understanding legal separation is key when dealing with financial planning, business ownership, and wealth management in the context of marital changes.


The purpose of a legal separation within the context of personal finance and business is to delineate the division of assets, debts, and financial responsibilities between two parties, often a married couple, without going through the complete dissolution of marriage or partnership, i.e., divorce. This legal action provides both parties with a legal framework for managing finances, property ownership, and living situations without completely severing the relationship or dissolving a marriage. It provides an opportunity for the parties to live separately, handle their finances independently, and possibly reconcile in the future.

A legal separation is primarily used in three scenarios: when couples want a break from marriage without an official divorce, for financial reasons, or when religious, moral, or personal reasons prevent divorce. For instance, many couples might choose a legal separation for financial benefits such as tax exemptions and shared health insurance. It also provides time for couples to decide if they want to proceed with divorce, while still having a legal agreement in place for financial protections. Overall, it is a flexible tool used in personal finance and business relationships when an absolute division is not the desired or necessary route.


1. Marital Divorce: One of the most common examples of legal separation involves couples deciding to live apart without terminating their marriage through divorce. During this separation, a legal agreement is usually put in place detailing the division of assets, child custody, and alimony payments. However, the married status remains, and neither party can marry someone else.

2. Business Partnership Dissolution: A legal separation can occur in a business context when two or more business partners decide to terminate their partnership but maintain the company. They have to agree on terms relating to division of assets, responsibilities, and future income from the business yet continue operating it separately.

3. Parent Company and Subsidiary: Sometimes, a parent company and its subsidiary might undergo a legal separation. For instance, Google created a new parent company, Alphabet, and restructured its assets under Alphabet while Google became a subsidiary. The relationship between Alphabet and Google is a form of legal separation, as they are considered separate legal entities for financial and legal liabilities but are still connected within a corporate structure.

Frequently Asked Questions(FAQ)

What is legal separation?

Legal separation is a legal process where a married couple may formally separate while remaining legally married. It typically settles matters of division of assets, child custody, and spousal support, but does not end the marriage the way a divorce does.

How does legal separation differ from divorce?

While both legal separation and divorce can divide marital assets, determine child custody, and arrange for spousal support, a divorce officially ends a marriage in the eyes of the law whereas a legal separation does not.

Why would a couple choose legal separation over divorce?

Some couples opt for a legal separation for religious reasons, to retain eligibility for certain health care benefits, or because they hope to reconcile in the future. It can also be a stepping stone for couples considering divorce but wanting to experience a trial separation first.

What happens to finances during a legal separation?

During a legal separation, both parties settle financial matters such as division of assets and debts, spousal support, and child support. The specifics vary based on the couple’s situation and the laws in their jurisdiction.

Can legal separation affect my business?

Depending on your location and the structure of your business, your business assets may be considered shared marital property and could be affected by a legal separation.

Is a legal separation permanent?

No, a legal separation is not permanent. A couple can choose to reconcile and end the legal separation agreement at any point. Conversely, a legal separation can also be converted into a divorce.

How does a legal separation impact taxes?

Depending on the timing and terms of the legal separation, the couple may still be able to file joint tax returns. It’s recommended to consult with a tax advisor for specific advice.

How does a legal separation affect health insurance?

Some health insurance plans may still cover a spouse who is legally separated but not divorced. It’s best to check the specific rules of your plan.

Related Finance Terms

  • Divorce Law
  • Marital Assets
  • Spousal Support
  • Custody Agreement
  • Financial Disclosure

Sources for More Information

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