The Pros and Cons of Common-Law Marriage

Same-sex couples who haven’t tied the knot can still reap financial benefits.

MoneySmart By Grace S. Yung
By Grace S. Yung

If you are living with your partner in Texas and meet certain criteria, you may be considered “married by common-law” according to the State’s definition—even if you haven’t obtained a marriage license.

For that reason, it’s important to have an understanding of how this can affect your finances, both now and in the future. Last month, I gave an overview of common-law marriage and discussed the advantages and disadvantages. This month, I’ll take a deeper dive into the financial aspects.

One of the biggest financial drawbacks to common-law marriage involves inheritance issues. When one spouse passes away, there may be a battle between the surviving spouse and the deceased’s family members over assets. In this case, the deceased’s family may require a common-law spouse to prove that the common-law marriage was “real.”

One of the biggest benefits of being recognized as a married couple is the uniformity it permits when it comes to the estate-planning process—primarily in terms of the unlimited marital deduction. This means that after one spouse passes away, the surviving spouse can inherit assets free of estate taxation. Without the marriage deduction, inherited assets could present a hefty tax burden for the surviving partner.

Same-sex couples in common-law marriages may also have the right to “intestate” succession from a deceased partner. This refers to inheriting assets, even without a written will in place.

Planning for Retirement

As you build a life together with your spouse or partner, you may also be building your future savings. Two of the primary retirement savings options are an employer-sponsored plan (such as a 401k), and Individual Retirement Accounts (IRAs).

Based on the U.S. Supreme Court’s 2015 ruling in Obergefell, married same-sex couples can leave “rollover” IRAs to their surviving spouses. “Rollover” IRAs can be better for tax purposes than “inherited” IRAs, since they allow surviving spouses to defer withdrawing funds until age 70½  (versus having to start withdrawals right away). However, the survivor may be required to present supporting documents to verify the marriage.

When it comes to an employer-sponsored retirement account, it is recommended that you review your beneficiary designation to determine whether changes are necessary once you’re considered a married couple.

In retirement, it’s possible that you will have several different sources of income, including a company pension and/or an annuity.

One of the important rights of same-sex spouses in common-law marriages is the entitlement to employer pensions and other retirement benefits.

For the purpose of making sure a surviving spouse can continue receiving income from an annuity, married couples will oftentimes include a joint-income rider. This rider can specify that the surviving spouse will continue to receive either 100 percent of the income amount, or a certain percentage (such as 50 percent) of what was received while both spouses were alive.

However, since all annuities (and the insurance companies that offer them) are not created equal, it’s important that your financial advisor determines whether an insurance company will recognize a common-law marriage for the purpose of a joint-income rider.

It’s essential to make sure that you have ample sources of retirement income, and that those assets are protected from unexpected death and/or a need for long-term care.

For example, partners may want to provide for survivors by covering income shortfalls, debt obligations, or college expenses. One way you can assure your partner is protected is through life insurance. Partners/spouses named as beneficiaries can receive life-insurance proceeds free of income taxation. And while the insurance company will require the policy holder to have an “insurable interest” in the insured beneficiary at the time of policy application, it isn’t necessary for the beneficiary to be the legal spouse.

As we are living longer than ever, there’s an increasing chance that you and/or your partner will require long-term care at some point. Even if you don’t need care in a skilled-nursing facility, a majority of people over age 65 will need at least some long-term care services—which can be extremely expensive.

Over the last several years, many have turned to long-term care insurance to cover this risk. If you and your partner purchase long-term care insurance coverage, you may find you’re not only entitled to the same coverage offered to opposite-sex married couples, but also to discounts on the premium you pay.

In addition, some long-term care insurance carriers offer a “shared care” option that essentially creates two benefit “pools”—one for each spouse or partner. Those who exhaust their own benefits can then use money from their spouse or partner’s “pool” to continue coverage.

While not all insurance companies offer shared care, some that do extend that benefit to same-sex couples. It’s important to check with a financial advisor about whether shared care is a viable strategy, and if so, which insurance carrier offers the best options and premium. In most cases, though, going with a shared-care option is more affordable than buying two stand-alone long-term care insurance policies.

Will Your Union Be Recognized by Social Security?

As you inch closer to retirement, you’ll want to be sure you know where you and your partner stand in terms of government-related benefits like Medicare and Social Security.

The Social Security Administration (SSA) says it “now recognizes same-sex couples’ marriages in all states, and some non-marital legal relationships (such as civil unions and domestic partnerships), for purposes of determining entitlement to Social Security benefits, Medicare entitlement, and eligibility and payment amount for Supplemental Security Income (SSI).”

According to the Social Security Handbook, if a particular state recognizes common-law marriage, SSA will also recognize it—provided certain criteria have been met. If both spouses are living, statements must be provided by each, as well as by a blood relative of each. If either spouse is deceased, statements must be provided by the surviving spouse, as well as by two blood relatives of the decedent. If both spouses are deceased, a statement must be provided by a blood relative of each spouse. These statements must be made on forms that are available from Social Security offices or on the SSA website.

If you haven’t done so, notify the SSA if you get married or enter a non-marital legal relationship, because your marital status can affect your entitlement to these benefits.

For example, married couples have access to a number of Social Security benefits, including spousal retirement benefits, disability benefits, and survivor benefits. In addition, if you get divorced without remarrying (and you were married for 10 years or more), you may be eligible for your ex-spouse’s Social Security retirement-income benefits.

Likewise, legally married same-sex couples in all states can get coverage under the same Medicare (or Medicaid) rules as married opposite-sex couples. This means that even if you haven’t earned the 40 “work credits” necessary to qualify for Medicare, you could be entitled to benefits based on your spouse’s work history. It’s important to note, though, that this may not be the case with a common-law marriage, so you should consult with a financial advisor who is well-versed in government-related retirement and healthcare programs.

Taking the Next Step

There are a number of ways to plan your current and future finances, and one key factor is whether you and your partner are considered to be a married couple.

If you live in a common-law marriage state such as Texas, you may be able to take advantage of various strategies available to those who are married—even if you haven’t “tied the knot.” However, even if you and your partner consider yourselves married via common law, it’s wise to consult an attorney and formalize your union with a written agreement.

When seeking out financial and/or legal advisors, it’s important to identify those who have experience dealing with LGBT issues.      


Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.
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