More and more states are legalizing same-sex marriages and many couples of both orientations; overlook the financial and legal consequences at tax time. It is important to set the stage for a long, successful marriage, by getting some of the tax filing options, financial planning, estate planning and retirement out of the way in advance. A change in marital status does affect all of these issues and many more. Here is an overview of what you need to know.
The first consideration, if you have not yet married is a prenuptial agreement. While many people feel this is something that is difficult to talk about and that may show less commitment to the relationship, in reality, it can be an important step for many couples. When handled properly, it can help a new couple open lines of communication while focusing on joint financial goals and an accurate snapshot of each other’s financial past. A prenuptial agreement is not just for high net worth individuals, all couples today should discuss with an attorney the potential benefits.
Next, it is important to discuss the comingling of existing assets and debts, marital assets and real estate. Will debts and assets be combined immediately or will each individual keep a separate account? With the help of an accountant, couples can decide what is best now and possible future steps for comingling of assets. In some cases, new couples may want to keep accounts separate if there is substantial debt on one side, prior to making this jump. This determination may help to decide the best legal designation to file annual income taxes.
Same-sex married couples must file either “Married Filing Jointly” or “Married Filing Separately”, just like their counterparts. If you decide that filing jointly is the best option, it is important to understand the risks. If a spouse has unreported income, you can be jointly responsible for any fines and taxes. However, by filing jointly, there is a higher income threshold for taxes, possibly allowing for greater tax breaks. It is important to go over both of these options with an accountant. If in the first year you and your partner decide to file separately, it does not keep you from filing jointly in the future – and vice versa.
“Married Filing Separately” can help to shield partners from liability, as well as from sensitive financial information that does not want to be shared. If a prenuptial agreement is completed, and assets are not going to be comingled, it is possible that this is the best solution. Both of these tax-filing statuses can impact your eligibility for Medicaid, Medicare and Affordable Care Act tax subsidies.
Every couple should meet with an accountant prior to marriage and routinely thereafter to help with taxes, filing designations, retirement planning, wealth building and much more. This is particularly important when one or more of the individuals own a small business or have income from multiple sources. Having an accountant can save you thousands or tens of thousands of dollars in these areas. The goal for every married couple is to mitigate the legal and financial implications of marriage while maximizing potential financial and legal benefits of marriage.
