Love is said to be lovelier the second time around, but for an increasing number of older Americans, that second time around doesn’t always include re-tying the knot.
In fact, people age 50 and up are the fastest-growing group of unmarried couples. There were 3.3 million Americans over 50 in “cohabiting relationships” in 2013, according to the National Center for Family and Marriage Research at Bowling Green State University. That’s triple the number in 2000.
Why are so many older American couples reluctant to head down the aisle? Significant financial issues often present themselves in later-in-life remarriage—akin to a marriage tax penalty of sorts. Here, we offer some strategies to help you overcome those obstacles, so you don’t have to miss a second trip down the aisle.
Remarriage and your income
If you’re receiving alimony, that arrangement will almost certainly change when you remarry. Alimony may even be cut off if you live with your new partner. It depends on the state where you divorced and your legal agreement with your ex-spouse.
Your Social Security benefits can also be affected when you remarry, depending on a variety of factors. If you’ve been widowed, or were married for at least 10 years before divorcing, you can draw Social Security benefits based on a spouse’s, or former spouse’s, earnings. But this benefit ceases if you remarry before age 60.
The marriage tax penalty
If you’re planning to remarry and both you and your intended are high earners, prepare to face a definite remarriage tax penalty.
Let’s say each of you earns $180,000 in 2015; the federal tax rate while you’re single would likely be 28%, since that tax bracket ends at an income of $189,300. Once you’re remarried, your combined income of $360,000 would boost you into the 33% tax bracket, which kicks in for joint filers when their incomes are above $230,451.
New taxes on investment income and the so-called “Medicare surtax” will also affect you, since the threshold for those is $200,000 for singles, but just $50,000 more for married couples—$250,000.
You can’t avoid those tax realities, but you can consult with a tax professional to find ways to offset taxes in other areas.
New spouse, new estate plan
Even if you leave everything to your children in your will, your property may not be distributed exactly as you wish. That’s because in most states, you cannot disinherit a spouse, and ERISA law requires your spouse to sign a consent waiver if you name someone else as beneficiary of your qualified retirement plan. So whether or not your new spouse is included in your will, most states automatically allow spouses to claim a share of the estate, usually one-third to one-half of assets.
If your intention is to leave all your assets to your own children, draw up a prenuptial agreement with your new mate in which one or both spouses agree not to take anything from the other’s estate. This is especially important if a family business or substantial assets are involved, advises Rande Spiegelman, vice president of financial planning at the Schwab Center for Financial Research.
“Whether it’s a significant estate or a family business, a prenup is important to protect those prior-held assets in the event of divorce or death,” Rande says.
Another sensitive issue involves providing for a new spouse while preserving assets for children from a previous marriage. One solution: a QTIP (Qualified Terminable Interest Property) trust, which enables you to provide income for a surviving spouse while ensuring that a residual amount goes to the children of a prior marriage. “This is standard for high-net-worth individuals who divorce or are widowed, and get remarried,” says Rande.
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