Money Talks | Nov. 20, 2014

When Is Marriage Not Enough?

By Melissa Myers and Michael Tucker, Nov. 20, 2014.

Melissa Myers: So now that same-sex marriage is legal in Arizona, I am noticing that some couples I meet have been lulled into believing that marriage is going to resolve all their financial and legal problems.

Michael Tucker: I’ve noticed that sort of magical thinking from time to time myself.

Myers: More than a few couples have let me know that now that they are married, their property is “protected.”

Heart-CarabinerTucker: At least they will have partial of complete intestate heirship if they are legally married to each other.

Myers: I’ve been suggesting that the couples consult with their advisers as to the legal and financial effect of their marriage.

Tucker: Wisely so. Folks tend to presume that the automatic effects of marriage are in complete alignment with the legal and financial results they want. That’s not always the case.

Myers: Give our readers an example.

Tucker: Well, for example, if a couple gets married, they might both presume that their assets will automatically pass to each other by law even if they haven’t signed any wills. That could be true if the spouse who dies first doesn’t have children. But if the deceased spouse had children from a previous relationship, those children would typically be entitled to an intestate share of the estate.

Myers: And the couple’s Last Wills and Testaments could change that result.

Tucker: That’s right. The same principle can work in reverse as well. Federal law gives a spouse special rights to inherit a 401(k) plan upon the employee spouse’s death. Some folks are surprised to learn that marriage may restrict their ability to leave their 401(k) plan account balance to whomever they wish.

Myers: How does Arizona community property law come into play here?

Tucker: Fundamentally, community property law provides that all assets acquired and income earned during the marriage are owned one-half by each spouse.

Myers: So that means that my spouse owns half of my paycheck?

Tucker: Yes, and vice versa. The community is also obligated on joint debts contracted during the marriage, even in cases in which one spouse enters into a debt obligation without the other spouse even knowing about it.

Myers: I’ve talked to a few couples that are counting on their marriage being legally recognized to protect their home if something should happen to one of them.

Tucker: The analysis doesn’t end with the mere fact that a couple’s marriage is legally recognized. Also it matters how the property is titled and the survivor’s responsibility for any mortgages on the property.

Myers: So, in some ways, marriage simplifies life and provides automatic rights and benefits that are appealingly uncomplicated. But, in other ways, marriage can create results that the brides or the grooms didn’t expect.

Tucker: That’s a good way of putting it. It gets more complicated for those couples that have minor children. The rights that each spouse has by virtue of the marriage do not line up precisely with the parental rights that each of them may enjoy or expect.

Myers: Parents may find that Arizona law on parental rights has some catching up to do in ways that won’t be resolved by marriage alone.

Tucker: In the coming months, some couples will consider marrying due to a financial opportunity that is “for a limited time only.” For example, if an employer terminates domestic partner health insurance coverage or if particular income tax reduction planning techniques will be available only if the couple is married.

Myers: It’s important for couples to look at the big picture, legally and financially as well as emotionally and culturally, when making those choices.

Tucker: Know what you’re looking at. And have coffee before you get married.


BIO_MMyersMTucker_WEBThis material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors should consult a tax or legal professional regarding their individual situation. Neither Camelback nor Commonwealth offers tax or legal advice.