Living Together or Remarriage: What Makes the Most Sense for Older Adults

After the death of a first spouse, or after a divorce, many individuals may fall in love and consider remarriage. For individuals with grown children and assets accrued over many decades of hard work there are numerous matters to consider before making this life altering decision.

The first thing to consider is whether marriage is the best option for both individuals. Marriage is a legal contract and with this comes many income tax, estate tax and other legal repercussions. On the negative side, under the laws of all the states and the District of Columbia, marriage confers rights on each spouse against each other's estates, pensions and other assets. Moreover, under the Medicaid rules now in effect the assets of one spouse are treated as the assets of the other, meaning that nursing home costs could drain the assets of the wealthier spouse. In addition, upon divorce or separation, either person could be obligated to pay support or alimony or give up part of the individual's assets to the now ex-spouse. On the plus side, marriage also confers benefits for estate tax and income tax purposes for some individuals.

Living together does not create these types of negative issues nor confer any estate tax or income tax benefits. When a couple lives together their estate planning can remain the same and their income tax status can remain the same. There is no threat of any challenge by the live-in partner if an individual wishes to leave his or her entire estate to his or her children or other family members. This can make the couple's children or other family members much more comfortable with the relationship. Moreover, by not marrying, an individual does not jeopardize his or her own assets to pay for his or her partner's incapacity and potential nursing home care. Each person's assets will be treated as completely separate if either partner ever runs out of funds and needs Medicaid for nursing home care. Finally, the end to the relationship does not cause any support or alimony issues.¹

By choosing marriage, if either or both parties have previously accumulated assets (whether in cash, stocks, real estate or retirement plans) and if either or both parties have children or other potential heirs, it is highly advisable to enter into a prenuptial (pre-marital) agreement. This agreement lays out each party’s rights and obligations over the course of the marriage; it should be negotiated by separate attorneys for each party in order to ensure that each party feels his or her interests are adequately represented. The prenuptial agreement can provide for most potential issues surrounding the marriage, including defining each individual’s separate property²; waiving the right to be the beneficiary of any retirement plan for either party; waiving the right to elect against a will upon the death of the other spouse or otherwise share in the other spouse’s estate, as well as any dower or courtesy rights and community property rights; waiving the right, upon divorce or separation to equitable distribution, counsel fees, costs and expenses, alimony, alimony pendente lite, support and maintenance or other similar payment, occupancy of the home and use of tangible personal property in the home; treating all of each spouse’s current and future debts as separate; ensuring that any appreciation or income from each spouse’s separate property or from any inheritance or gift, stays as separate property, whether it is real property, or tangible or intangible personal property; addressing joint property ownership and joint living expenses; and addressing the filing of income taxes. In addition to the prenuptial agreement, upon marriage, it may be necessary for each spouse to waive rights in the other’s pension plans. This must be done on the form provided by the plan administrator. Moreover, if spouses purchase real or other property together the spouses must decide on the form of ownership. If assets are held jointly or as tenants by the entirety, the assets pass to the survivor by operation of law. This form of ownership will supersede the prenuptial agreement. Each spouse may also wish to purchase long term care insurance to ensure that each spouse has sufficient coverage in case either spouse must enter an assisted living facility or nursing home. Because the Medicaid rules treat a husband and wife’s property as owned by both, even if it is owned separately, this can be essential to ensuring that each spouse retains his or her own assets for his or her own care and family.

Of course there are some legal and tax planning upsides to marriage. Because of the unlimited marital deduction, upon the death of the first spouse, there can be a deferral of federal and state estate taxes until the second spouse dies. However, this does require fairly sophisticated estate planning. Moreover, upon marriage, spouses can make joint gifts and therefore increase the amount each spouse can give to his or her children from the $13,000 each individual can gift to any person each year without gift tax reporting requirements, to 26,000 per year.

Older couples, who have lived a full life prior to meeting, should work with their attorney and financial planner to logically consider whether marriage or living together is the best option for them. By doing this, they can preserve their love and respect for one another, without compromising their individual financial and family situations.

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¹ Of course, individuals may have religious or moral reasons for not wishing to live together without marriage. In this case, some religious denominations will perform religious marriages, without performing a civil marriage, meaning that a person may be married in the eyes of god, but not under civil law.

² Separate property can be defined as:

(1) all tangible personal property or personal property, including but not limited to stock, mutual funds, treasury bills, options, warrants, unlisted financial instruments, REITS, GNMAs, bonds, notes, other securities, chooses in action, certificates of deposit, cash, cash savings accounts, and checking accounts belonging to either party at the commencement of their marriage.

(2) all property acquired by either person out of the income from property owned at the commencement of the marriage, the proceeds of the sale of said property or attributable to appreciation in value of said property, whether the enhancement is due to market conditions or to the services, skills or effects of the owner of said property;

(3) all property acquired by each party after the marriage, including all property acquired by gift, devise, bequest or inheritance together with the property and income derived therefrom including property acquired in exchange for such property;

(4) earnings and income, including any retirement plans and other employee benefits, accumulated as a result of a party’s skill, efforts, education, background, personal services, investments and work, together with all property acquired or income derived therefrom, including any property acquired in exchange for such property, would be the separate property of that party who earned the income or through whose income said property was obtained.

(5) any earnings, income or other financial remuneration arising from either person’s interest in any business that either person may currently have any interest in, have had any interest in, or may have any interest in, at any future date.

(6) any real property which either person owns at the time of the marriage, including the proceeds from the sale of such property and any reinvestment of the proceeds of such property.