Financial Benefits of Marriage Every Investor Needs to Know
With the Supreme Court handing down a sweeping opinion in favor of marriage equality in the Obergefell v. Hodges case, the freedom to marry is now the law of the land in all 50 states for millions more Americans. This seems like a perfect opportunity to go over some of the financial benefits of marriage for all married couples, gay or straight, who might not realize some of the perks that come along with the wedding rings and vows; benefits that can have a profound influence on your ultimate net worth, the size of your investment portfolio, and whether or not you reach financial independence.
The list of marital benefits is extensive — according to the Government Accountability Office, there are 1,138 rights linked to the marriage contract [Source PDF], some of which govern things as arcane royalty streams on mineral and water rights from real estate leased to the Federal government — so we want to focus on a handful that will be the most relevant for the readers of this site.
You Can Contribute to a Spousal IRA
A major financial benefit of marriage is the ability to contribute to a tax shelter such as a Roth IRA using your spouse's earned income to trigger eligibility even if you don't have a job outside of the home. This makes it possible for marriages in which one of the parties is the sole breadwinner to put aside far more money for retirement than would otherwise be possible. For young couples, this can be a game changer because small amounts invested regularly can result in many millions of additional dollars in net worth upon retirement if you're disciplined, prudent, and consistent.
Every little bit counts.
You Can Rollover Your Spouse's IRA Into Your Own IRA Upon Death
A primary financial benefit of marriage is that a married spouse listed as the beneficiary on a retirement account such as a Traditional IRA, Roth IRA, or 401(k), can roll over the assets held in these tax shelters into a similar account in his or her own name, even consolidating with existing, similar accounts. This helps ensure that a widow or widower isn't unfairly penalized with the loss of tax-deferred or tax-free compounding on existing retirement savings because he or she lost his or her husband or wife.
You Can Transfer Unlimited Assets to Each Other Without Gift Taxes or Estate Tax
There is no limit to the asset value you can transfer between spouses, nor are any death taxes owed on assets inherited by a surviving spouse; a huge financial benefit of marriage for families in which one or both people enjoyed high incomes and/or significant asset accumulation. Some states even have special ownership categories that are stronger that "Joint with Right of Survivorship" available exclusively to married couples who are registered owners of securities such as membership interests in limited liability companies.
You Can Double Up Your Annual Per Recipient Gift Tax Exemptions
Do you want to give your children, grandchildren, nieces, nephews, friends, siblings, or any other ordinary taxable entity money, perhaps to help them buy their first home, pay for college, or begin building their own investment portfolio? Congress allows each person to give a recipient $14,000 per annum without triggering the gift tax (which must be paid by the person giving the gift, not the recipient, on top of the amount given away or else the gift will be applied to the giver's lifetime exemption that kicks in prior to the estate tax).
Married couples can combine their gift tax exemptions, giving away $28,000 per recipient. They can probably even go further by using liquidity discounts and a family limited partnership give away far more based on past tax court rulings that are far beyond the scope of this discussion (talk to a qualified legal and tax advisor). Do not underestimate how significant this can be.
To illustrate: Imagine you have built a substantial nest egg. You have a son. He is married to your son-in-law and they have three kids. Combining your and your spouse's gift tax exemptions, you could give $140,000 to them as a family unit between both of you (e.g., you give your son $14,000, your spouse gives your son $14,000; you give your son's husband $14,000, your spouse gives your son's husband $14,000; you repeat this with each of the three grandkids).
If, instead, you formed something like John Smith Family Holdings, LLC, and contributed $280,000 in assets to it, a good tax representative is probably going to be able to get a 50% liquidity discount applied to the LLC units so each of the 5 family members is gifted $56,000 per annum, indirectly, without any taxes owed; the money pooled in what amounts to a private family mutual fund permitting you to more efficiently transfer money down the family tree without politicians getting their hands on any of it.
You Have Primacy in Intestate Succession in the Event Your Spouse Passes Away Without a Will
A major financial benefit of marriage is that the surviving spouse has an important, frequently primary, de facto space at the head of the inheritance line in the event his or her husband or wife passes away without a will. In my home state of Missouri, for example, the still-living husband or wife will inherit the first $20,000 plus 50% of all assets in the spouse's estate, with the other 50% going to the deceased spouse's biological or adopted children, per stirpes. Just as importantly, to defend this right, the surviving spouse is entitled to notification of probate hearings in the court system.
Be forewarned, though, that things like explicitly named beneficiaries on retirement plans and joint with right of survivorship or payable on death designations on bank accounts supersede both intestate succession and even written wills. There have been cases of couples being married for decades, only to have an ex-husband or ex-wife, who hasn't been in the picture for 30, 40+ years, inheriting large IRAs and 401(k) accounts because the original beneficiary listing was never updated. There isn't a thing you can do about it, either.
Make sure your paperwork is in order!
You Have the Right to Renew or Extend the Copyright on Your Late Spouse's Intellectual Property
Intellectual property can be a major source of passive income. If your husband or wife had the copyright on books, plays, music, or other works, you can maintain the exclusive monopoly over the property as if he or she were still alive, keeping the asset churning out money for your family or heirs for much longer than would otherwise be possible.
You Might Be Entitled to Death, Pension, and Survivor Benefits for Your Spouse or Ex-Spouse
Spousal Social Security benefits, Veteran benefits, Veteran property tax exemptions, $100,000 payouts for public safety officers killed in the line of duty, the ability to remain on employer-sponsored health benefits, the right to collect workers compensation payouts and wages due, standing to collect benefits in the railroad, harbor worker, and longshoremen fields, military death benefits, nursing home care, federal employee survivor benefits ... if your spouse had vested in some sort of retirement or benefit system or systems, the odds are decent you, as the window or widower, are going to be able to continue collecting some of those entitlements.
You Can Re-Title Condominium Properties Among Yourself and Enjoy Exemption from "Due-on-Sale" Clauses of Certain Debts Such as Secured Mortgages
If you want to transfer marital property to your spouse to ensure it stays in his or her hands (or for other reason), under most situations, you should be exempt from things like "due-on-sale" clauses in mortgages that make the entire balance come due if there is a change of ownership.