Posted by & filed under Divorce, Finances, Legal, Separation.

finances after separationWhen couples decide to separate or divorce, it often takes some time to sort out their finances after separation.

(Learn more about how long will it take to get divorced?)

Sometimes, they still live together and have a lot of joint expenses. Even when they are not living together, they may still have joint debts such as credit cards, car payments, a mortgage, and other installment payments.

There are different ways of handling finances after separation.

Some couples pool their income during their relationship by depositing all income into one bank account and paying all expenses from that account and continue to do that after they separate. Some people have or obtain separate bank accounts after they decide to separate and reach informal agreements about who will pay which expenses, and whether one of them will contribute to the other’s expenses. In some cases, a formal agreement or court order mandates a specific amount of support and who will pay which debts or expenses. Finally, some people muddle through without any informal or formal agreements or court orders and somehow get expenses and debts paid. So with the various ways of handling finances, at the time of the divorce when the assets and debts are divided, the question arises about sorting out what happened with the finances after separation.

In California, one of the underlying principles in family law is that when people are married or in a registered domestic partnership, they are creating a financial community, sharing their income and their expenses while they are together. So when they separate, any debts or obligations that exist at the time they separate are the responsibility of both of them, not just the person who incurred them.

After they separate however, they no longer have a joint financial community.

The income each earns belongs to the person who earned it and the expenses each incurs after they separate is his or her individual responsibility. But what if one person uses his individual income after separation for joint debts from before separation? Then he or she is given credit for using his or her own income to pay a community obligation. For example, I make credit card payments after separating from my spouse. The payments equal $2,000, and it goes toward the old balance (not new charges after separation). When the assets and debts are divided, I will be given credit for paying down the debt in the amount of $2,000. The same principle applies to joint expenses paid by one spouse after separation, such as payments on a joint insurance policy or payments for a shared asset, like a house where you both live. These credits are referred to by family lawyers and judges as “Epstein credits”.

“So credit is given for payments after separation. Are there any exceptions?”

There are two exceptions to the general rule that credit is given for post-separation payments. One exception is that if you are using an asset (such as a car), you typically aren’t given credit for the payments for that asset (such as the monthly loan payment) if the payment is approximately the same as the value of using the asset. The other exception is that if the payments are a substitute for support (e.g. you are paying the mortgage for the house your spouse is living in and not paying cash support), then you would not receive an Epstein credit.

This blog post was written by Catherine Conner.