According to a new Washington University Law Review article, Federal Law punishes older couples who marry or stay married. If you encounter someone and fall in love during your golden years, you might be better off staying unmarried than getting married. Under current federal law, you and your long-term partner might be able to salvage your struggling finances by divorcing after 60 years of marriage.
Professor Richard Kaplan, Guy Raymond Jones Chair in Law at the University of Illinois, writes an article entitled “Preferring Nonmarriage In Later Years.”
An unmarried couple may be better off financially than a married couple in social security and nursing home care. Elder marriage and elder divorce are among the most important financial issues facing all elders, which makes them more than academic issues.
Social Security benefits began to be taxed in 1983. According to Kaplan, the taxation system is so bizarre that married couples with the same finances pay higher taxes than unmarried couples. There are two thresholds at which Social Security taxes kick in, with the applicable threshold being less than twice that of the threshold for an unmarried couple.
The first income threshold for a single person is $25,000, and for a couple, it is $32,000. The second threshold for a single person is $34,000, while the threshold for a couple is $44,000. Two unmarried people who earn $25,000 each in retirement won’t even reach the first threshold. However, married couples with a $50,000 income are subject to 85% benefits taxes.
According to Kaplan, the current income tax structure on Social Security benefits makes nonmarriage the preferred status under the law.
This isn’t the only bizarre aspect of Social Security taxation. As part of Alan Greenspan’s plan to “save” the system, taxes were introduced in 1983. Because Social Security is paid into with after-tax dollars, these are double taxes. Contributions and benefits are both subject to income tax. As the expression goes, they get you coming and going.
Additionally, Social Security tax thresholds have not even been indexed for inflation since 1983, and they were introduced as a tax on high earners only. Would you consider a retired couple earning $32,000 a high earner?
While the marriage penalty for Social Security taxes may seem strange, it pales compared to the treatment of married couples when paying for nursing home care. The average cost of living in a nursing home is about $110,000 annually in the United States. Many still believe Medicare will cover the cost of their stay in a nursing home if they need one. Kaplan points out that it won’t work except under very narrow circumstances (like skilled nursing care for a few months after discharge from the hospital). Only Medicaid will cover nursing home costs once you have spent nearly all your assets and income.
An unmarried couple is considered two separate people by Medicaid when it comes to making sure you’ve spent nearly all your assets first.
As a result, if Emily and David are married and David has to go into a nursing home, Medicaid will demand the couple spends nearly all their money—both Emily and David’s—before it starts chipping in.
Kaplan writes that Emily might be required to pay for David’s nursing-home care as a married person. Emily’s income would not be subject to this mandatory contribution requirement if David and Emily were not married.
The Medicaid law does not intend to make Emily destitute, but the allowances aren’t extensive. This includes a primary residence if the spouse is still living there, a car, a prepaid burial plot, and something called the “Community Spouse Resource Allowance,” or CSRA, which varies from state to state and can reach $137,400 in some states. This amount is supposed to cover the needs of the remaining spouse. Kaplan writes that there is no equivalent concept to the CSRA for couples who are not married, so there is no limit on how much an unmarried partner can keep.
Kaplan continues: Assume David has $100,000 in financial assets beyond the ‘exempt resources’… while Emily has $600,000. Assume David and Emily do not need Medicaid long-term-care benefits, so their combined nonexempt resources are $700,000. David’s care would require all those assets to be spent until only $137,400 remains (at most). If David and Emily were not married, David would have to spend down his $100,000 to $2,000, while Emily’s $600,000 of assets would be unaffected.
Moreover, if the couple is married, Medicaid may come after Emily to help defray David’s nursing-home expenses after David dies. If Emily dies, they can even go after her estate, and if they are not married, they cannot touch Emily’s estate.
Kaplan admits that it is not entirely a one-way street. You can still benefit from marriage in your senior years from a legal standpoint. It is possible to replicate some of those benefits without tying the knot through legal documents and smart planning, such as estate planning and healthcare power of attorney.
Marriage is made in heaven but lived on earth. Uncle Sam doesn’t make the latter any easier as you age.