A lot of our clients are in committed, unmarried relationships. Sometimes we work with only one member of the couple. Sometimes we work with both members. Most couples haven’t thought about the effects of their decision to remain unmarried.
Let me just tell you, this is something that the financial planning profession and the legal profession do not seem to be particularly well prepared for. “What do you mean, buying a home together without being married? What do you mean, having a baby without being married?”
Not being legally married does create more work for you. Some of that extra work is simply required to recreate some of the rights and protections you have “by default” if you get married. Some of the extra work is work that married couples should do, too, but tend not to because they (unconsciously?) rely on the rules of marriage.
When we ask clients why they have decided to not get married, the reason is usually something like, “Just doesn’t seem that important to me. Being with my partner is important. Owning a house is important. Having a child. Those are important. Being married isn’t. If there’s a good enough reason to get married, we’d be open to it.”
Well, let us review the reasons to get married, and see if any of them are good enough.
To be clear, from a moral/cultural/lifestyle perspective, I have no dog in this hunt. But I do want you to be aware of the effects of your decision—unconscious or explicit—to not get married. (To be fair, deciding to get married carries with it lots of important considerations and risks also. And it’s likely that most married couples didn’t think consciously about most of those.)
Here are the financial and legal reasons (i.e., ignoring all cultural, religious, and family reasons) we’ve collected over many conversations with clients. And please just take these as illustrative, as opposed to definitive. For that, you’re also going to want to talk to a CPA and especially an estate planning attorney.
The Biggest, Most Immediate Considerations: Tax and Legal. With Health Insurance Thrown in for Fun.
I…have nothing good to say here but it’s illegal to put no text between two headings.
Tax Considerations
If you and your partner each file taxes as Single people, the total tax you pay will likely be very different than the tax you’d pay if you were to file as Married Filing Jointly. This can go either way: sometimes you’d pay less, sometimes more.
A CPA or other tax preparer should be able to easily tell you whether it makes tax sense to be married. (And remember, if you get married legally on December 31, the IRS acts as if you’ve been married the whole year.) Usually, if one partner significantly out-earns the other, it’s beneficial to be married.
Legal Considerations
When you are legally married, you and your spouse are now subject to certain (mostly state-level) laws that govern how you must behave towards one another and rights you have during the marriage…and if you get divorced.
- What happens if the relationship ends? In the event of a divorce, state laws dictate that who gets what assets and whether one spouse has to pay the other alimony. If you’re not married, it’s much less predictable what each party will end up with. If you’re not married to your partner, ask yourself: If you split up tomorrow, how would that affect your finances? Would you have to find a new place to live? Would you have the money to do that? (Of course, even if you’re married, you can still “override” state-law defaults with documents like a premarital agreement.
- What if one of you is in the hospital? Spouses are often allowed to visit you. Your unmarried partner might not be.
- Can you make decisions on your partner’s behalf if they’re, say, in a coma? Again, spouses get rights that aren’t always afforded to unmarried partners.
If you do not have access to these legal rights “naturally” by being married, we highly recommend you recreate the ones that serve you best by drafting some legal documents with an estate planning attorney. Every time we work with an unmarried couple—or just one member of a couple—doing significant things like buying homes together, we connect them with estate planning attorneys.
There are many rights that marriage gives you that you can re-create with the right legal planning. I mean, hell, LGBTQ couples weren’t allowed to get married for many years and so were forced to plan around the lack of marital protections and advantage.
Employer Health Insurance
If you’re married, you can easily get on your spouse’s work health insurance. (It might cost extra, but it’s usually available.) If you’re not married to your partner, it’s not necessarily so easy. We definitely have unmarried clients who have been able to add their partners to their health insurance because they work for particularly progressive companies, but I don’t know how pervasive that is yet.
This is especially nice if you or your partner isn’t working—you’re a stay-at-home partner or parent, or you’re taking a sabbatical or hell, you just can’t find a job—or if you’re self-employed. In those cases, having access to other’s workplace health insurance plan can be worth a lot of time and saved hassle!
Longer-Term Considerations: Retirement and Death
If you’re in your 20s, 30s, and 40s, there are a lot of marriage-related considerations that can have a huge financial impact…many years or decades down the line. That distance makes it easy to ignore them. But please please still think about them.
(I say “many years or decades,” but, realistically, death could occur at any time…and with that cheery thought…)
Social Security spousal/survivor benefits
If you’re married for at least 10 years, members of a married couple (or formerly married couple) can lay claim to spousal benefits based on the other spouse’s Social Security benefits. This benefits the lower earner. So, if you earn less than your partner, you could be losing out on a lot of guaranteed income in your retirement by not being married.
Pensions
Let’s say your partner has a pension. (Lucky dog!) If they choose to take the money out of the pension (to roll it into an IRA, for example) instead of getting monthly pension payments from it at retirement, you, as the spouse, have to permit them to do this. Similarly, if your partner decides to take the pension to be paid out over only their life, and not over their and your life, you have to permit them to do this. It’s called a “spousal waiver.”
I imagine, if you’re not actually the person’s spouse, the pension system won’t care much about getting a spousal waiver because they have no notion of you, and you won’t benefit directly from the pension at all. You have no claim to it.
This is not my area of expertise. Not many pensions in the Land o’ Tech. But occasionally we work with clients who have a (small) pension left over from a previous job, or one spouse works in a state government job or something, so we do run into it occasionally!
Inherited IRAs
The recently passed SECURE Act has made it much more beneficial to be married when inheriting someone’s IRA. That said, if you and your partner are really close in age, this is less of an issue.
Inherited HSAs
Health Savings Accounts can be amazing retirement savings accounts. However, if you die with money in your HSA, the inheritance rules suck if your beneficiary is anyone other than your legal spouse. Basically, all the money comes out in the first year and is considered taxable income. Your heir would lose all the tax benefits of the HSA and also have a whopping big tax bill.
Your spouse, however, uniquely can continue using the HSA and its funds with all the tax benefits that you were getting from it.
[added August 8, 2024]
Estate exemption at death
At this point, this isn’t an issue for you unless you have many millions of dollars when you die. (Estate tax exemptions can—and do!—change every few years according to current political whim, so who knows if it’ll apply to you when The Time Comes.) But the estate exemption was in fact the issue behind one of the landmark Supreme Court cases that ended up recognizing same-sex marriages.
If you die with lots of money, your estate might have to pay taxes on it before your heirs can inherit what’s left. If you have a spouse, your spouse can get everything without paying taxes. If you are not married to your partner, you have no such claim, no such protection, and could lose a lot of money to estate taxes.
Step-up in basis upon one of your deaths
As a married couple, living in a community-property state like CA and WA (not NY…sorry!), you’d be eligible for a “step-up in basis,” upon the death of one of you, on assets considered community property. Generally, assets you acquire during the marriage are considered community property. This could create big tax savings. You can look at a more detailed explanation with numerical examples for California and for Washington. If you’re not married, you won’t get this step-up, and so your survivors will have to pay more tax on what they inherit from you (or what you inherit from your partner).
Leaving money to your spouse at death
Laws are state-specific, and they can vary from state to state. Some states (like California) require that you leave a certain minimum amount of your estate to your spouse. You may not leave everything to other people in your will. If your partner dies, these laws protect you against your partner leaving you with nothing. If you’re unmarried, you don’t have this protection.
Dying without a will
If your spouse dies without a will, you will most likely still get part of their estate. Maybe even most or all of it. Because that’s what state law says happens in the event of a spouse’s death. If you are unmarried, it is much less certain that you’ll be entitled to part of your partner’s estate.
The Real Value is Largely in the Conversation
When we bring up these issues with our unmarried clients, we don’t have any expectations or desires around them getting married. But we do want them to have a real conversation with each other about it all. What it means to not be married, or to be married. Are they aware of the effects of their choice? Are they okay with the effects of each choice?
Personally, I think these are conversations that most married couples didn’t have before getting married. This is also one of the advantages of creating a pre-marital agreement: you are forced to have a conversation about the relationship and its possible future.
Do you want someone in your life who can help you have important, maybe uncomfortable conversations? Who can point out some risks you might not even know you’re taking? Schedule a free consultation.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.
