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Why do I need a separation agreement? Part Two

In our last post we discussed how a separation agreement can sever certain inheritance rights that exist between spouses post-separation but, prior to divorce. Today, we will explore two clauses that are included in most separation agreements. One grants a spouse rights to buy separate property post-separation. The second takes away liability of one spouse for debt incurred by the other post-separation.

A free trader agreement can be executed by separated spouses as either part of a separation and property settlement agreement or as its own separate document. Once signed by both spouses, it allows either to purchase land or personal property as if they were single and unmarried and as if the marriage between the parties had never taken place. A free trader agreement ensures that the non-purchasing spouse has no interest in whatever property the other spouse purchases. Many lenders require such an agreement so that non-purchasing spouse cannot later claim an interest in the property as a result of the marriage. This scenario is best explained by example:

Husband and Wife separated. Wife remained in the marital home. Husband stayed with a friend for a few weeks and now wants to purchase a new home. He is trying to get pre-approved for a mortgage but, the bank won't approve a mortgage for him without a freetrader agreement. Without one, Wife could claim that the new house is martial property, and that consequently she is entitled to half its value. A signed freetrader agreement shows the bank that the parties really are separated and that the bank should approve a mortgage for Husband alone because Wife does not and will not claim any interest in the house. Also, with a free trader, Wife's signature would not necessary on any documents related to buying or selling property.

Under the doctrine of necessaries, a spouse is liable for debts incurred by the other spouse if the debts were incurred for necessary expenses. Necessary expenses typically include food, shelter, and medical care. It does not matter if the non-purchasing spouse agreed to pay the debt or not. Moreover, this liability continues even after separation. 

By way of illustration, Husband and Wife separate. Husband later gets in a car accident. He is then treated at a local hospital. The hospital can seek payment from Wife for Husband's medical bills even though they are separated, even though the services only benefitted Husband, and even though Wife never agreed to pay them.

Spouses can limit liability for necessaries by entering into a separation agreement and providing written notice of their separation to providers of necessary goods and services.

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