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Money March 2015

Financial Fortitude

Marriage – Straight or Gay – Not a Good Choice Just for Finances

By Karen Telleen-Lawton

Finally, with marriage comes the potential for divorce. When a spouse becomes a "fife" (former wife) or a "was-band," the process is still difficult, costly, and time-consuming by design. Given these complexities, I would not suggest a marriage for financial reasons.

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The benefits accrue largely because a spouse leap-frogs over the rest of the family to becoming your next of kin. Retirement plans such as 401(k)s require that the spouse be the beneficiary unless he or she waives that right. Likewise, spousal and survivor Social Security benefits accrue to legally married partners.

Dear Karen: I'm pretty satisfied with our current living arrangement, but ever since the Supreme Court struck down the guts of the Defense of Marriage Act, my partner has wanted us to get married. It's not that I don't plan for us to stay together, but neither my siblings nor my straight friends seem to be able to figure out how to make marriage work. Why should we bother? – Disillusioned

Dear Dis: You're right that marriage doesn't have a good track record these days. The freedom that many feel now to enter marriage leads us to ask questions such as yours: Why get married? Since you are posing it to a financial advisor, I will defer the important religious and spiritual implications to dive into economic reasons for and against a legally sanctioned marriage.

Marriage is for couples who want to be each other's family, which is a pretty high standard. When that commitment is made, society upholds it with legal benefits and responsibilities. The Human Rights Campaign (hrc.org ) catalogs over 1,138 benefits, rights, and protections that accrue to married couples. These include Social Security, tax issues, family and medical leave, immigration, employee benefits, and COBRA.

The benefits accrue largely because a spouse leap-frogs over the rest of the family to becoming your next of kin. Retirement plans such as 401(k)s require that the spouse be the beneficiary unless he or she waives that right. Likewise, spousal and survivor Social Security benefits accrue to legally married partners. Depending on the state and any legal contracts, there are potential implications such as emergency hospital visits or expressing the wishes of a spouse who is incapacitated.

There are some restrictions: partners must be married at least one year before spousal benefits apply, and nine months before survivor benefits. Given that, the same collecting strategies apply, such as one spouse collecting spousal benefits after full retirement age while the higher-paid spouse delays until age 70. Congress is discussing legislation to award benefits to legally married same-sex couples regardless of zip code. The Justice Department also is reviewing the issue. In the meantime, the Social Security Administration encourages all to apply now to protect potential benefits, even if they aren't sure of their eligibility. The SSA says there will be no penalty for applying for benefits that are later denied.

Interestingly, in case readers are wondering if these new benefits will contribute to the deficit, that's apparently not the case. Research by economist and analysis by the Congressional Budget Office suggest that state and federal budgets do and will benefit from expanding the definition of marriage. Any additional state and federal spending on benefits apparently will be outweighed by savings from lower cash assistance and Medicaid spending.

So, everybody wins. But what's the other side of the coin for a couple? The responsibilities parallel these benefits. You are financially responsible for each other. Your married partner's individual debt may not legally be yours, but jointly owned assets are at risk with a spouse's debt. When you combine lives, your finances intertwine in ways that are difficult to predict, including potential effects on your credit rating.

Another disadvantage of marriage is that you may pay more income taxes if you become subject to what some call the "marriage penalty." This happens when and if your joint income lands you in a higher tax bracket than either of you had singly.

Finally, with marriage comes the potential for divorce. When a spouse becomes a "fife" (former wife) or a "was-band," the process is still difficult, costly, and time-consuming by design. Given these complexities, I would not suggest a marriage for financial reasons.

The overarching question for you is whether you want to commit your life to your partner. If so, I suggest an old-fashioned engagement period, whose purpose is to try on the idea and check out the implications. This includes everything from meeting (or getting to know better) each other's families to exploring your finances. If either of you still has kids living at home, it would be wise to bring them into the discussion (without necessarily allowing them a deciding vote!)

Discussing your future goals and dreams –  travel, retirement dreams, and so forth –  may be an enjoyable way to begin. Then you can segue into the present, comparing budgeting, attitude toward debt and credit scores.

If all of this makes you want to run the other way, then it may be time to have a serious discussion about your future as a couple.

 

Karen Telleen-Lawton serves seniors and pre-seniors as the Principal of Decisive Path Fee-Only Financial Advisory in Santa Barbara, California (http://www.DecisivePath.com). You can reach her with your financial planning questions at This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

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