The United States Supreme Court ruled last week that same sex marriages are legal throughout the country. Many same sex couples may assume that they should automatically get married. However, before couples get caught up in the excitement, it is important that they understand the legal and tax consequences of marriage. After all, in many situations a couple may find that purely from a financial or legal standpoint, marriage is not the way to go. Particularly for couples that have already been involved in a long term relationship, it is important to review some of the legal and financial consequences before a couple decides to say “I do.”
From a tax standpoint, if a same sex couple gets married, they will no longer have the option of filing an individual return. They would either have to file a joint return or a married, filing separate return. In most cases, filing a joint return is preferable than filing married filing separately. However, there are many cases were filing two individual returns is better than filing a joint return. For example, in a situation where both parties are highly-paid individuals, the marriage penalty can be severe. For example, if both parties are making over $300,000 a year, the top bracket individually is 33 percent. On the other hand, if they get married, the top bracket would be 39.6 percent.
Another issue that couples have to consider is government benefits. When someone is married, it boosts their household income and as a result they may find that they do not qualify for certain types of assistance. An example for older couples could be Medicaid, where household income may disqualify someone from benefits. An example for younger couples could be being disqualified for certain programs based on income designed to make it easier to pay off student loans.
Couples need to decide their estate planning wishes before they say, “I do”. As a married couple, there are certain obligations each spouse has to each other. Those obligations don’t exist unless a couple is married. Therefore, before a couple decides to get married, they should review the estate planning impact of their decision. In many situations before they tie the knot, a couple will have to consider a pre-nuptial agreement. After all, we cannot forget that marriage is also an economic partnership.
As a reminder for individuals who do get married, whether it is a traditional marriage or a same sex couple marriage, if you have existing estate plans, those need to be changed to reflect the marriage. It’s just not your will and trust that would need adjustments but also, any powers of attorney that you have.
Many same sex couples have been in a committed relationship for years and now will face a tough decision as to whether they continue their relationship as is or legalize it. Obviously, whether it is a heterosexual couple or a same sex couple, love for each other should be the driving force. However, we all know that life has its complexities and that is why before anyone decides to legalize their relationship, they need to consider all the legal and financial implications and to make an informed and educated decision.
Good luck!