Not married? Protect your finances stat!

Unmarried couples are facing new pressures to tie the knot now that same-sex unions have been federally legalized and some companies are planning to repeal benefits unless couples are legally married. And yet, many singles seem to be resisting marriage.

As many physicians know, marriage allows a couple to title certain assets in a spouse’s name as a legal precaution in the event of a malpractice case or other legal situation. Married couples can collect Social Security spousal and survivor benefits, file joint tax returns, and participate in an estimated 1,100 other federal rights and protections, according to the Human Rights Campaign, a civil rights advocacy group.

Buy. Sell. Merge. Make your best move

All told, there is such a compelling legal case for couples to choose marriage today that Martin Shenkman, JD, an estate-planning attorney with offices in New York and New Jersey, has a hard time recommending anything else to committed couples, gay or straight.

“There are hundreds of years of marriage law, and domestic partnership agreements have dramatically less law behind them,” he says.  “Typically, physicians’ No. 1 concern is protecting assets from a malpractice case and without a spouse you’re exposing yourself to nettlesome problems.”

Next: Changing landscape

Last summer’s U.S. Supreme Court ruling in the case of Obergefell v. Hodges, giving same-sex couples the right to marry everywhere is expected to prompt at least a portion of employers to kill domestic partner benefits, even as evidence mounts that among all couples, the urge to merge seems to be declining.

A September 2014 Pew Research Center study found that a record share of American adults has never been married, and just 21% of previously married people would like to walk down the aisle again.

What to do if marriage isn’t right for you, either now or ever? Providing for children from previous unions in your estate planning, preserving Social Security spousal benefits, or avoiding a tax hit could all be reasons for putting off matrimony. So is the fact that you simply might not be ready for a lasting commitment. What are couples in these situations supposed to do about some of the key financial decisions in their lives?

Related: Top 12 worst and best paying states for internists

“With the changed landscape, so many people that used to be domestic partners will now be married, so the potential for developing laws for domestic partners is less likely,” Shenkman says. On the plus side, he says, the federal gift-tax exemption-$5.45 million in 2016 for a single taxpayer-remains high enough that most unmarried couples won’t trigger estate taxes at death. 

“When the threshold was lower it was a real problem for domestic partners,” he says. “Now even for most physicians, they can make as many gifts as they want [to a non-spouse] and there won’t be a tax cost. Most physicians are more affluent than the average American, but not so wealthy that they would be going above the exemption limit.”

Next: Benefits and penalties

Benefits and Penalties

Rita Lee, MD, a Colorado internist, was in a same-sex domestic partner arrangement for roughly eight years before marrying about two years ago. For her, in addition to the emotional component, marrying was about protecting the couple’s ability to act on behalf of their two children as parents with full rights and responsibilities.

“We weren’t the first in line to do everything from a legal standpoint [as same-sex couples gained more freedoms in state law over time], but we did everything eventually,” she says. “We wanted to protect ourselves as a family unit, so we did the registered designated beneficiary signatures and then later did a second-parent legal adoption.”

Navigating 2016's reimbursement challenges

Lee was also able to switch to her wife’s health insurance plan because it offered better benefits, but the couple now pays more in taxes due to the so-called marriage penalty, which typically occurs among couples where both spouses earn roughly equal, substantial amounts and end up owing more in taxes as a couple than they would if each was single.

“You do have to think about the financial implications,” she says. “A co-worker talked to us after we got married and confided that based on the taxes, they weren’t getting married.”

Always careful planners, Lee and her partner also signed a prenuptial agreement before getting married. “It’s a hard discussion to have and it takes a lot of communication. We just approached it not like we were assuming the worst, but what do we do if circumstances change? It’s more of an open conversation.”

Next: Sit down, this may take awhile

More unmarried couples, same or opposite sex, are asking about whether they should marry, particularly with same-sex marriage now being legal, says Dan Serra, CFP, a financial planner  specializing in domestic partnerships and an assistant vice president at Chevy Chase Trust, a Bethesda, Maryland, investment firm.

Premium Content Preview | Steps to Successful Financial Protection for Family Physicians

“Many wealthy medical professionals have experienced bad breakups and are scared to be legally tied again, so they’re choosing to plan around that,” Serra says. “This makes planning to support their partner without a legal marriage even more urgent.”

Avoiding marriage doesn’t mean avoiding messy conversations about finances, Serra and others say, so don’t think that just because you keep separate accounts and don’t wear rings you can avoid legal minefields down the road. 

Sit down: This may take awhile

Co-habitation agreements-legal documents spelling out the rights and responsibilities partners agree to take on in the event of a split-are a must-have document these days, Serra says, and they can be quite complex and time-consuming to think through. 

It’s worth the time, however, he says. “Couples need to understand how to protect each other, and each other’s children if a partner dies or something goes wrong with the relationship,” he says. “Having a sit-down now will set the tone for managing money throughout the relationship.”

Experts say a positive way to go about the conversation is to bring it up in the context of estate planning, rather than a co-habitation contract.

Next: The tax man cometh

Whether it’s pre-nuptial or co-habitation agreements, the most peaceful contract negotiations are done without the pressure of a pending event, such as a wedding or a move-in,says Laurence Cutler, JD, an attorney with Laufer, Dalena, Cadicena, Jensen & Boyd in Morristown, New Jersey, and former chair of the family law section of the New Jersey State Bar Association. 

That means talking about finances as you begin the engagement conversation in the case of a marriage In the case of couples living together, the timing can vary depending on circumstances, Cutler says. 

Financial strategies: Opportunities in year-end tax planning

“If the couple are both of similar, more modest means, I’m not sure that something is needed right away,” he says of co-habitation agreements. “But if there are substantial assets, that’s different. I had one case where the total legal bill was almost $40,000 because it was a complex case. The relationship was over in a few months, but the client didn’t mind because he has about $10 million to protect, so it was worth it.”

The tax man cometh

If you’re on the fence over whether to marry and want to consider all the financial angles, don’t forget the tax impact, as it can be significant, experts say. Hire a tax pro to run sample returns for both of you to discover if marriage is a financial pro or con.

For two-earner affluent couples, often there is a tax penalty for being married, notes Serra. Particularly for couples where one spouse earns much more, there may be more deductions being married. 

There are also ways to plan around whatever relationship one truly desires, says Shawn Koch, JD/CFP, founder of Koch Financial Partners in Portland, Oregon. “Physicians often have access to making large [income] deferrals into a 403b [workplace retirement plan] or a profit-sharing plan” to mitigate the tax hit of marriage, Koch says. “The key determinant may be how old the clients are and in what life stage. For younger ones who want to have children, they are more likely to want to get married. Older clients who have families with older children from previous marriages often have less reason to marry.”

Next: Double check social security

Steve Branton, CFP, a financial planner with Mosaic Financial Partners, Inc. in San Francisco, recently ran a pro forma tax return for a same-sex couple who discovered they would take a $20,000 income-tax hit by filing jointly.  “They aren’t far from retiring and aren’t in a huge hurry to marry, so they might wait” until they are in a lower tax bracket in retirement before planning a wedding, Branton says. 

Diana Adams, JD, a New York family law attorney, also sees clients who are grappling with negative financial consequences of marriage. “If they have established careers, they may have well-developed financial lives and getting married might not be the best situation for them,” she says. 

How physicians can prepare for their financial future

More couples, married or not, are keeping some assets separate, experts say, which is another way to protect yourself in the event of a breakup. “Domestic partnerships may involve sharing health insurance and tying the couple together legally to verify employment, allowing them to visit each other in the hospital and be a healthcare proxy, but generally a domestic partnership doesn’t necessarily involve a financial relationship,” Adams says. “Two people could choose to buy a house together and share common expenses, but have their own retirement accounts and other assets.” 

Double check social security

Filing for Social Security spousal benefits was long thought to be another advantage that would convince unmarried couples to tie the knot, but recent changes to the program may make those benefits less compelling.

The strategy of claiming a benefit, then suspending it and allowing a spouse to file a claim on your work record while you let your benefit earn delayed retirement credits used to be a way for couples to earn more together than as singles. After Congress effectively killed this strategy (for most people younger than Social Security claiming age) in the 2015 budget agreement, however,  the incentive is somewhat reduced, so it pays to run the numbers through an online Social Security planning calculator or speak to a qualified adviser about whether spousal benefits would be a factor for you in retirement.

Next: Physician advice

Jesse Joad, MD, a pediatric pulmonologist and emeritus professor at University of California, Davis School of Medicine, is still able to take advantage of the file-and-suspend strategy with her wife, Ann Bonham, because they are both grandfathered in. For others, particularly couples who both worked and earned their own benefits, the change could be significant.

“We became domestic partners in the mid-90s, which basically meant we could visit each other in the hospital. Over time we were able to do financial powers of attorney and a joint tax return in California while we still did separate federal returns. It was all really confusing,” Joad says of the tax process. 

Having a recognized marriage today, she says, is about more than money. “The bottom line is I’ve awaited and appreciated every time we could get more government sanction of our relationship because even with all those prior steps, I think we still saw ourselves as hybrids.  Despite our commitment, I remember once a very senior person at the university having to remind us we were both expected to go to an event that was for couples – it made me realize after all this time we did sort of see ourselves differently.”

Another point to keep in mind is that state palimony laws governing unmarried cohabitating couples vary widely, says Adams. And in some states, a court might impose a constructive trust on an unmarried partner, compelling him or her to provide for a partner, she says. 

It’s also important to consider domestic partner benefits in your practice, experts say. Employers offering subsidized health insurance to domestic partners generally must report the value of those benefits as income, increasing workers’ tax liability and employers’ administrative duties and costs, says Todd Solomon JD, a Chicago-based partner with law firm McDermott, Will & Emery.

“Some employers have historically covered both same-sex and unmarried opposite-sex partners as a recognition that families come in all shapes and sizes,” Solomon says. “I don’t see those employers changing course now.”

Next: Could be trickier, but...

It could be trickier for employers who have been offering benefits only to same-sex couples because they didn’t have the option to marry. Those companies are really at a crossroads, he says. “Nobody seems comfortable retaining benefits for only same-sex couples now, so they’ll either eliminate them for same-sex unmarried couples, or swing the other way and add in all unmarried domestic partners.” A few employers are looking at adding everyone, but they are in the minority because of the tax and administrative burdens, Solomon says.

In a national survey of employer health plans released in November 2015, consulting firm Mercer found that nearly two-thirds offer domestic partner benefits of some kind, though the prevalence varies by region. Just 47% of Southern firms offer them, compared with 80% in the West, Mercer found.

“I certainly think now is the time to make your opinions known to your employer because this is being discussed at high levels of organizations,” says Wade Symons JD, a principal at New York-based Mercer. “If you want to keep these domestic partner benefits it’s a good time to talk to your human resources department and tell them that this is important to you and to others who work here and you want to see them continued. And if you’re looking at moving to another employer, it’s certainly a fair question to ask whether the organization is committed to continuing the benefits.”

Experts say some employers are considering “grandfathering” in existing employees who are getting coverage as unmarried couples, but taking away the benefit for new hires.  Others are giving workers a grace period–typically a year–to decide whether or not to marry.

“We haven’t tried to quantify how having these benefits affects companies’ ability to attract and retain employees,” Symons says. “But it does appear that taking these benefits away creates some noise and a lot of employers are sensitive to that.”