Money Talks | April 2017
By Melissa Myers and Michael J. Tucker, April 2017 Issue.
Michael J. Tucker: We’re continuing to see same-sex couples who are weighing the pros and cons of getting married.
Melissa Myers: Yes, we’ve noticed that a few couples aren’t taking into account all the benefits or disadvantages related to spousal status.
Tucker: For folks who have saved for retirement in 401(k) plans, IRAs or similar programs, consider that leaving an 401(k) or IRA to a spouse gives him or her a lot more income tax deferral options than to an unmarried domestic partner.
Myers: The income tax difference in the long run could be huge.
Tucker: It could even be HUGE. Surviving spouses don’t have to start withdrawing the spousal rollover IRA until age 70 and a half!
Myers: It can create a big income tax deferral opportunity for the surviving spouse if the IRA owner dies at a relatively young age.
Tucker: Probate law also helps surviving spouses more than it helps surviving domestic partners.
Myers: Even if there’s no will, a surviving spouse is entitled to some or all of the estate, depending on who the other heirs are.
Tucker: Whereas an unmarried domestic partner isn’t legally an heir at all in an estate with no will.
Myers: Of course, in Arizona and other community property states, the surviving spouse already owns half of the community property of the marriage.
Tucker: By contrast, unmarried domestic partners don’t have any automatic entitlement to what their partner earns or acquires during the relationship.
Myers: Other benefit programs with safety nets for surviving spouses include government and military pensions, Social Security and many private-employer pensions as well.
Tucker: Social Security surviving spouse benefits alone could be a significant motivation to marry, particularly if one partner’s earnings record is significantly stronger than the others.
Myers: That could be important for some couples. For example, if the one without a big Social Security retirement check is the one who lives longer.
Tucker: That’s because everyone who is eligible for Social Security retirement benefits has their benefit calculated based on their own earnings record. But someone whose spouse had a much stronger earnings record could get a spousal benefit based on the spouse’s earnings record that exceeds his or her own retirement benefit.
Myers: With respect to their Social Security retirement benefits, as opposed to survivor benefits, some couples can get married to open up more flexibility and choice regarding which retirement benefits to take and when to take them.
Tucker: Here’s another issue. Spouses also have rights to bring wrongful death lawsuits if their husband or wife is killed accidentally, whereas unmarried domestic parents do not.
Myers: The analysis of whether marriage helps or hurts such couples is different from one case to another.
Tucker: And an ever-popular reason to get married is to benefit from one or both spouse’s employer-provided spousal benefits, mainly employer-provided health insurance.
Tucker: I don’t want to ignore the reasons why people might not want to get married.
Myers: People should think twice before marrying someone with a lot of debt or risk.
Tucker: Like the fiancé with $300,000 in student loan debt, unpaid taxes, YUGE credit card bills or with a lot of risk from their business or profession.
Myers: Even though those risks can be minimized by prenuptial agreements, in many cases, we hope our readers will consider these factors when determining the decision that’s right for them.
Editor’s Note: This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors should consult a tax or legal professional regarding their individual situation. Neither Camelback nor Commonwealth offers tax or legal advice.