Older couples are punished by federal law for being married, according to a new critique.
If you and your long-term spouse make it into your 60s, you may be able to stay unmarried because of federal law.
Richard Kaplan, the Guy Raymond Jones Chair in Law at the University of Illinois, wrote about the implications of referencing non marriage in later years.
Social Security and nursing home care are two areas where unmarried couples are often better off than married ones. Elder marriage and elder divorce are two of the most important financial issues facing all elders.
According to professor Kaplan, the taxation system is so "bizarre" that taxes are higher on married couples than on unmarried couples. The applicable threshold for a married couple is less than double the threshold for an unmarried person.
A single person with an income of $25,000 and a couple with an income of $32,000 are considered the first income thresholds. For a single person and a couple, the second threshold is $34,000 and $44,000, respectively. A married couple with income of $50,000 pays tax on 85% of their benefits.
The law's preferred status on this important and widely applicable issue is due to the current income tax structure.
There are other ways in which Social Security looks strange. Alan Greenspan wanted to save the system. These are double taxes because you pay into the social security system with after tax dollars. The benefits are also subject to income tax. The expression goes as they get you to come and go.
Compare the treatment of hedge-fund managers and private-equity managers, who once again escaped having to pay regular taxes on their huge incomes.
The income thresholds at which you pay Social Security taxes weren't adjusted for inflation. In 1983 they were only taxes on high-earning people. Do you know if a retired couple with a total income of $32,000 is considered a high earner?
When it comes to paying for nursing homes, married couples are treated differently than single people. The cost of a nursing home has gone up. People think Medicare will pay for them to stay in a nursing home if they need to. It won't, except in very narrow circumstances, such as skilled nursing care for a few months after discharge from hospital. Medicaid is the only federal program that will pay for nursing home costs if you have spent all of your own assets and income.
The twist is here. Medicaid will consider a married couple as a unit, but an unmarried couple as two separate people, if you want to make sure you have spent all of your own assets first.
Medicaid will demand the couple run through most of their money before it starts chipping in if Bill and Betty are married.
Some of Betty's income may have to be paid for Bill's nursing home bill. If Bill and Betty weren't married, her income wouldn't be subject to this requirement.
There are some things that can be done. Betty is not rendered penniless by the Medicaid law. They are not a lot. They usually include the primary residence if the spouse is still living there, a single car, a pre-paid burial plot, and something called the "Community Spouse Resource Allowance" or CSRA, which varies from state to state, and is supposed to be enough.
There is no limit on how much an unmarried partner can keep in the CSRA for couples who aren't married.
Bill has $100,000 in financial assets beyond the 'exempt resources', while Betty has $600,000 of such assets. Bill needs to apply for Medicaid long-term care benefits so his and Betty's combined nonexempt resources are $700,000 All of those assets would have to be spent on Bill's care until $137,400 is left. If Bill and Betty weren't married, Bill would have to spend down his $100,000 to $2,000, while Betty's $600,000 of financial assets wouldn't be affected.
Medicaid can help defray Bill's nursing home costs if the couple is married. They can go after Betty's estate after she passes away. If they aren't married, that's not true.
It is not a one-way street. There are legal benefits to marriage in senior years. Even without tying the knot, you can use legal documents and smart planning to replicate some of the benefits.
It is said that marriages are made in heaven, but they are not. Uncle Sam makes the latter more difficult when you are older.
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