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This Issue: [Post-DOMA Marriage : Office News : On the Home Front]

November 2013

Should My Partner & I Get Married (Revised post DOMA)?

Thanks to the Supreme Court’s striking down of DOMA and those states and the District of Columbia that have legalized same-sex marriage, many couples are legally able to marry AND have their rights as a married couple recognized by the government. This month we look at some of the financial questions that many people have when considering marriage.

Should you get married? That’s obviously a difficult question to answer. You should first be at a place in your relationship where you’re ready for that commitment. If you decide to move forward, there are some questions that you may have regarding the financial impact of marriage. Some of the frequently asked questions that my clients have asked are listed below.

How do we handle our individual, non retirement assets?

I have found few economic benefits for combining assets. If anything, I have found more potential problems and risks associated with such a merger.

First, with a joint bank or investment account, both spouses would now be subject to income/capital gains taxes on that money.

Second, if one of you passes away and you own an asset jointly, the survivor will only receive a half step up in basis rather than the full step up that would be available to the beneficiary of an individually owned asset. For example, if you purchased stock XYZ for $1 per share and it’s now worth $2 per share, a joint owner would have a tax basis of $1.50 in that stock at your death. The beneficiary of an individual account would have a $2 per share basis. This could impact the income taxes of the survivor.

Third, remember that if you decide to open a joint bank or investment account (or add your spouse to your current account), you’re giving your spouse half ownership in that asset. That means that your spouse has full access to the balance of the account. While you are getting married, and you likely trust your spouse, this is an adjustment for most couples. The same ownership rights also apply to adding your spouse as an owner of your home or other real estate.

One significant upside is that you may now give as much of your assets and property to your spouse without worry of making a taxable gift; a gift that until now could negatively impact your income and/or estate taxes.

What about taxes?

With the elimination DOMA, the IRS has stated that they will treat the federal income taxes of all married couples the same. This means that you may now file joint income taxes at both the state and federal levels. For couples with large income disparities, this could help lessen the overall tax burden of the household. For high-income couples, taxes could increase due to the so called “marriage penalty.”

Another issue to consider is your Roth IRA contribution. As two individuals, you were subject to different income limitations than married couples. In 2013, an individual can make up to $127,000 and still be able to contribute something to a Roth IRA. A couple may only make up to $188,000 and be able to contribute. Getting married may prevent one or both spouses from making Roth IRA contributions.

If you were married prior to 2013 and one or both of you made Roth IRA contributions, I highly recommend seeing a CPA to determine if you have to make any adjustments to those contributions. While the federal government didn’t recognize your marriage at the time, the elimination of DOMA may impact past years’ income taxes/Roth IRA status.

For couples who keep their finances separate, filing taxes together may cause a problem. One of you may have been receiving (and relying on) a tax refund every year, while the other broke even or owed money. You may find that filing together complicates day-to-day finances by comingling income and taxes due.

I recommend that you see your CPA regarding how to handle your state income tax filings because every state is different.

What happens if one of us dies?

If you live in a state where your marriage is recognized, the courts may provide the same beneficiary recognition and probate procedures as they would for a traditionally married couple. This means that in many cases, your partner may be the default primary beneficiary for your estate if you do not have a Will or other beneficiary/asset transfer arrangements in place. Your spouse should also be the primary person to make medical decisions on your behalf if you are unable to do so. An attorney will be able to provide better guidance on what rules apply for your state.

If you live in Maryland, your estate may be subject to a 10% inheritance tax. This tax may be waived for receipt by a spouse but not by a partner. Being married and living in Maryland at the time when one of you passes away could save the survivor a fair amount in state inheritance taxes.

I recommend that you have an estate planning attorney work with you to draft an estate plan. Even if you have one in place you may find that getting married may change some of your estate planning needs.

In the event we divorce, what should we know?

Court proceedings should provide a path to separate assets just as they would for any married couple. However, the courts will only have these procedures in place should you divorce in a state that recognizes your marriage. If you move to a state that does not recognize your marriage, you may find that you cannot legally divorce. Remember, if you cannot divorce, you cannot get remarried (among other complications that may arise).

Will we receive survivorship Social Security benefits?

If one spouse passes away, the survivor may be entitled to some additional Social Security benefits. A spouse may also be entitled to Social Security benefits after a divorce (assuming that those benefits would be higher than what that spouse is currently entitled).

For spouses with children, both the child and surviving spouse (assuming the spouse who passed is a legal parent of your child) may receive Social Security benefits until the child reaches 16. The child is entitled to benefits until married, 18, or 19 if attending school full time.

Just because marriage may be legal where you live, it does not mean that you should rush to the courthouse. Weigh the pros and cons of marriage before you take the leap.

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.

Office News

Office Closures…
Our office and the markets will be closed on December 25th for Christmas.

We will also be closed on January 1st for New Year’s Day. We wish everyone a happy, healthy, and successful 2014!

Just a reminder…
We are always accepting donations for the local animal shelters – toys, tennis balls, collars, leashes, food, cat litter, cardboard trays, office supplies, cleaning supplies, towels, mats, washcloths, etc. We will accept donations Monday-Friday between 9AM & 5PM.

On the Home Front

Heidi and I have been fortunate enough to have been invited to a client’s birthday celebration in Barcelona, Spain and a friend’s wedding in Puerto Rico this year. We had a wonderful time at both destinations.

Our 2014 calendar is fairly open. If anyone else has a destination celebration for 2014, we’d love to come!

Happy holidays to everyone.