After 10 years of living together, your partner just popped the question. For a gay or lesbian couple, this question may require more consideration than a simple yes or no.
“A marriage proposal poses a different question for same-sex couples who have successfully navigated life together for years without the formalities of saying ‘I do’,” said Leanna Johannes, a PNC senior wealth strategist. “Although they now enjoy marriage equality, couples also should ask themselves whether it makes financial sense to get married.”
Underlying economic costs could deter some same-sex couples from marrying, while others may benefit. Consider these points:
When you say “I do,” you enter into a marriage contract, and this often means combining assets and liabilities.
“Because unmarried same-sex couples have successfully isolated their assets and liabilities for so long, sometimes it’s harder to see the bigger financial picture,” said Johannes.
One benefit of marriage is involvement when one member of a couple becomes sick or dies. Gay and lesbian married couples enjoy the peace of mind that they are legal next-of-kin for making decisions for a sick spouse and will be involved in the spouse’s estate at death, absent other arrangements.
Being married also means if divorce occurs, couples may be legally obligated to divide marital assets, even if their earnings aren’t equal.
One way to reduce the risk of an inequitable division of marital assets is to sign a prenuptial agreement. The agreement would complement or provide an estate plan for same-sex couples, which would be upheld in court when one spouse dies.
Depending on the individuals’ income levels and whether they file “jointly” or as “married filing separately,” marriage can either raise or lower a couple’s tax burden.
Because of the less-compressed tax brackets for married couples, those filing jointly may see a reduction in their overall tax burden compared to filing as unmarried, single individuals. For example: Heather, a high-income earner, and Tanya, a low-income earner, marry and file their taxes jointly. Heather may land in a lower tax bracket given Tanya’s lower income.
Married couples also receive exemptions from estate, gift and transfer taxes for all property given or left to a spouse.
On the other hand, spouses with high incomes may face the “marriage penalty.” Even though Congress has addressed this problem, under present tax law, high-earning couples may find they pay more in income taxes once married. For example, Jake and Sam each have annual taxable incomes of $120,000. Filing as single individuals places them in the 28% tax bracket. Filing as married puts them in the 33% bracket because of their combined household income.
In many circumstances, health benefits may not be available to domestic partnerships.
If an employer offers spousal benefits such as health insurance, married couples may be able to benefit shop between their respective employers to find the best health care and other benefits—and not pay income taxes on those benefits.
However, some employers do offer the same employee benefits to domestic partners as married partners. But it’s important to keep in mind that the value of the benefits for the domestic partner is charged as taxable income to the employee.
Married couples are eligible to receive Social Security, pension and IRA spousal and survivorship benefits based on their spouse’s work record, whether or not they have benefits of their own.
For some couples, marriage could mean greater financial security during retirement, especially if a spouse dies and the survivor can continue to receive the larger of their individual retirement benefits. However, due to nuances and complexities involved with claiming Social Security benefits, the Social Security Administration urges couples to file a claim, even if they are not certain they are eligible.
Married couples can change the title on any bank account or home without paying transfer or gift taxes.
In some states and the District of Columbia, married same-sex couples can protect their assets from creditors by titling some or all assets as Tenants by the Entirety (“TBE”), which legally allows married couples to own all property as a single unit.
If one spouse files for bankruptcy because of an illness, a failed business, or being upside-down on a mortgage, the creditors of either member of the couple cannot attach the assets titled as TBE.
Under a TBE ownership, couples may not sell or give property without each other’s consent. Also, should a spouse die, TBE allows the surviving couple member the “right of survivorship”, meaning he or she has the right to the entire property as opposed to other heirs.
If the assets are simply titled as a “joint tenancy,” a creditor may be able to attach a lien to some or all of the jointly titled property. The one difference is joint tenants cannot sell or give assets without consent.
One thing is for certain, there are benefits to getting sound, coordinated advice from your legal, tax and financial advisors.
“Even though the playing field is now level for all couples, legal and financial planning protections are still important,” said Johannes. “We believe that couples should do all they can to implement the protections available to them. While one cannot reduce the emotional decision to marry to an economic analysis, it is better to know what lies ahead financially when making a life-changing decision.”
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