Thanks to the recent Supreme Court ruling, same-sex couples nationwide can now marry and get the financial benefits that heterosexual couples have enjoyed for years.
It's essential to understand the financial benefits of marriage—so that you can take full advantage.
From retirement planning, to estate planning, to buying a home, to employee benefits, the rules are different (and generally more favorable) once you're married.
When it comes to money, marriage changes things—a lot. From owning property to retirement planning to estate planning to filing taxes, the rules are different—and largely more favorable. And now that the Supreme Court has paved the way for same-sex couples to marry, millions of additional Americans will now be able to receive the advantages heterosexual couples have enjoyed for years.
The thing is, though, that like so much else in personal finance, you have to understand the rules in order to get the maximum benefit. In some cases a couple may get hit with a higher income tax bill (the infamous ‘marriage penalty'), but from a personal finance perspective, the positives of marriage far outweigh the negatives. Here's a quick overview.
Take advantage of spousal and survivor Social Security benefits
One of the most significant advantages of marriage is that it makes you eligible for both spousal and survivor benefits from Social Security. The most basic benefit is that as a married couple, you will each be eligible to collect either a Social Security benefit based on your own work record, or up to 50 percent of your spouse's benefit, whichever is greater (and you can also switch between the two). In addition, as a widow or widower, each of you will be eligible to collect up to 100 percent of the other's benefit. And should you divorce, you may still be eligible for benefits as an ex-spouse.
Also realize that there are a number of strategies that can increase your combined benefit with your spouse; be sure to take your time and weigh your options before either one of you files.
Think carefully about how you title your property
Whether you're buying a new home or sharing an existing home, think carefully about how the property is registered. Unless both of your names are on the property, the unnamed partner is vulnerable in case of divorce or death. If you sell your home, a single person only gets a $250,000 capital gains exclusion; a married couple who owns the home jointly can exclude up to $500,000. For estate planning purposes, you may also want to register the title in the name of a revocable living trust (this will protect your assets from the probate process).
Another bright spot is that it is generally much easier for a married couple to qualify for a mortgage.
Benefit from favorable gift and estate tax provisions
You will be able to take advantage of the unlimited estate tax marital deduction. A married person can leave an unlimited amount of money to their spouse without paying any estate tax. In addition, the surviving spouse can use any unused portion of the deceased spouse's lifetime estate tax exclusion upon his or her death. Under current law, this means that a married couple can pass on up to $10.86 million free of estate tax.
Revisit your life insurance needs. In light of potential estate tax savings, wealthy couples should reexamine their need for life insurance. That old policy may no longer be necessary.
Your gifts to each other won't be subject to gift tax. Married couples can transfer an unlimited amount of property to each other free of any reporting responsibilities or gift tax. In addition, you'll be able to use “gift splitting” to essentially double the amount that you can jointly give to a third party (in 2015, from $14,000 to $28,000) without having to report your gift to the IRS.
You may want to form a trust. If you are blending two families, you may want to create a QTIP trust. That way a surviving spouse is granted a life interest in the trust property, but upon his or her death, the property passes to heirs selected by the first-to-die spouse.
Pay attention to income tax implications
You will be able to choose between filing a joint or separate income tax return. This doesn't mean that your combined tax bill will go down; in fact, you may see it go up—especially if you both earn a substantial and similar amount of money. Some tax credits and deductions will only be available if you file jointly, but it's a good idea to consult with an accountant to see which choice is best overall.
You won't have to pay tax on a spousal insurance benefit. When an unmarried person includes a partner on their health insurance plan, that benefit is taxable. For married couples, it's tax-free.
You will be able to defer distributions from an inherited IRA. If you inherit an IRA from your spouse, you can basically treat it as your own and postpone taking required minimum distributions until the year you turn 70 ½. This can potentially allow your assets to continue to grow tax-deferred until they are withdrawn.
Look into new ERISA benefits
If one of you participates in a qualified retirement plan through your employer, your spouse will be entitled to a number of benefits and protections. For example, your spouse is the automatic sole beneficiary of your retirement assets, and must consent in writing to waive this benefit. A spouse is also entitled to other benefits including health care coverage as well as protection under the family medical leave act.
Familiarize yourself with military and veteran benefits
As a military spouse, you may be eligible for a number of benefits including health care and family separation pay. Spouses of deceased veterans are also entitled to benefits such as health care, educational assistance, home loan guarantees and pensions.
Explore federal employment benefits
The federal government provides a broad array of benefits to the spouses of its more than 22 million employees, including health, retirement and survivor benefits.
If marriage is on the horizon, congratulations! But before you tie the knot, I highly recommend that you explore the financial implications of marriage as you plan your finances as a couple. That way you'll best be able to enjoy this next chapter of your life!