WHAT YOU NEED TO KNOW ABOUT FUNDING EXPENSES DURING A SEPARATION

Separation and divorce can be described by a lot of different adjectives, but “cheap” is not one of them. In a separation, a family goes from living in one household to all of a sudden, living in two households, with two mortgages or rents to pay, two sets of utility bills and a host of other doubled or more complex set of shared expenses.  A party may also find themselves having to pay spousal or child support on top of household expenses. How can this dynamic be sustained financially until a final divorce and settlement is reached?

A good starting point for someone going through a separation is to know what available funds you can draw from and when.  This blog will shed a bit more light on that:

When possible, expenses should be paid out of current income as opposed to savings or other types of accounts.  When that is not possible, utilizing funds from a savings account, selling off securities and investments and even taking a premature withdrawal from your retirement accounts are less ideal but viable backup options.

If there has been no court order entered yet, you may draw down on bank accounts and investment accounts provided it is for a legitimate marital purpose.  Legitimate marital expenses include rent, mortgage, utilities, childcare, groceries or personal grooming items and/or attorney’s fees.  Conversely, during a separation, one should not utilize proceeds from bank and investment accounts for purely discretionary spending such as on vacations, luxury merchandise purchases, tattoos, cars or boats.  This type of spending may be considered what is legally called “waste” or “dissipation,” which means one spouse has used marital property for his or her own benefit and a purpose unrelated to the marriage at a time when the marriage is undergoing an irreconcilable breakdown. That definition means waste and dissipation can occur before or after the separation, and the party making such expenditures would have to account for lost assets in the final property distribution of a divorce. In these cases, it does not matter whether an account is separately titled or joint – only that the account contained “marital funds.”

Retirement accounts should be the account that is tapped into for marital expenses only as a last resort for many reasons.  With the exception of single annual withdrawals that are replaced within 60 days, there is the automatic premature withdrawal penalty of 10% plus tax penalties depending on your bracket for taking funds out of an Individual Retirement Account (IRA) or 401K prior to age 59.5.  As an example, someone in the 33% tax bracket who withdraws $49,500 from a retirement account prior to age 59.5 can expect to net just $31,000 from the withdrawal.  Unless absolutely necessary to stay afloat, withdrawing from your retirement account is financially imprudent.

Another important point to know if you are considering or in the midst of a separation is that once a divorce action has been filed, a court may enter what is known as a pendente lite Order. This defines the temporary obligations of the parties when it comes to spousal support, child support and payment of household expenses.  The Virginia law on these temporary Orders was amended in 2016 to provide that unless a party can show good cause, all obligations must be paid out of post-separation income.  The restriction now severely limits a spouse’s ability to use assets to provide for support and household expense needs during a separation.

The decision to utilize marital assets to pay for household expenses must be made with careful consideration, with current income being the ideal source for obligatory spending.   Discretionary spending from what would be considered marital assets or accounts should be done with caution, and with the knowledge of how that lost money will be handled in an eventual divorce. Seeking the input of a financial advisor, accountant or attorney is highly recommended before taking any significant action that has an effect on the marital estate.

Learn more about separations in Virginia here. For more information on what to know during a separation or divorce, contact one of our highly knowledgeable and skilled attorneys at Curran Moher Weis.


Demian McGarry  
About the Author
A resident of Arlington since 1999, Demian J. “Dem” McGarry has focused his practice on providing assertive, diligent yet sensitive representation to clients facing issues of divorce, custody, visitation, international custody, property distribution, post-divorce enforcement actions, pre-marital and post-marital agreements, and appeals. While always trying to reach an amicable settlement first, Mr. McGarry has extensive experience in high conflict divorce and custody cases. Mr. McGarry also has two reported cases and has been counsel on several other appeals before the Virginia Court of Appeals.