marriage

How Do Your Finances Change When You Get Married? FAQs, Part 1

Scarsdale CPA Paul Herman has all the answers to your personal finance questions!  
Marriage and finance tips from scarsdale tax preparers

Marriage can have a large impact on your personal finances.

 

 

Marriage is an exciting milestone, and a wonderful time for all of those involved. However, with marriage also comes many changes in terms of your finances. The following are FAQs our Westchester CPA firm receives on marriage and how it can affect your financial situation:

How does legal treatment differ between married and unmarried couples?

 

Unmarried couples don’t:

  • Inherit each other’s property automatically. Married couples have the state intestacy laws to support them if they do not have a will. Under the law, the surviving spouse will inherit (at the minimum) a fraction of the deceased spouse’s property.
  • Have the privilege to speak for one another in a medical crisis. In the case that your life partner loses capacity or consciousness, someone will have to make the go-ahead decision for a medical purpose. It should be you, but if you haven’t filed certain paperwork, you may not have the ability to do so.
  • Have the privilege to handle one another’s finances in a crisis. A married couple that jointly own assets is less affected by this problem than an unmarried couple.
▼ How should unmarried couples protect their estate and financial holdings?

Here are some important steps to take for couples that are unmarried:

  • Draft wills. The chances of the intentions being followed through with after a death are greater if both partners make wills. Without wills, the probability of the unmarried surviving partner having no rights is more likely.
  • Think about owning property together. This is a way to guarantee that property will pass to the other joint owner at the time of the other’s death due to the right of survivorship.
  • Make a durable power of attorney. This will permit the partner to sign papers and checks and take care of other financial issues on his/her behalf should one become incapacitated.
  • Make a health care proxy. Also known as a medical power of attorney, this permits the partner to talk on your behalf to make medical decisions, should you become injured.
  • Have a living will. This lets your wishes regarding artificial feeding and other measures to prolong your life be known.
▼ Is more insurance necessary for married couples?

In the case of death, life insurance will provide a form of income for your dependents, children or whoever is your beneficiary. Because of this, married couples usually require more life insurance than singles.

Having someone dependent on your income will determine if you need to have life insurance. If someone such as a child, parent, spouse or other individual is dependent on your income, you should have life insurance. The following are situations where life insurance is necessary:

  • Single parents or families with young children or other dependents. The younger your children, the more insurance is necessary. Insurance should be in proportion to the amount earned. If both spouses are working, they should both be insured. If both earners cannot afford to be insured, the primary wage earner should be the first to be insured and the secondary will follow. To fill the insurance gap, a less expensive term policy may be used. Insurance should be bought to cover the absence of services such as childcare, bookkeeping, housekeeping, which are provided by the spouse that works within the home. The insurance that covers the non-wage earner is secondary to the insurance that covers the wage earner’s life, if funds are scarce.
  • Adults that have no children or other dependents. You will need less insurance than people in the previous situation if your spouse can live comfortably without income. However, some form of life insurance is still necessary. You will want at least enough to cover burial expenses, to pay off any debts you may have acquired, and to provide an easy transition for the surviving spouse. You may want to buy more insurance if you think your spouse would go through financial hardship without your income or if your savings aren’t adequate. This depends on your salary level as well as the amount of your spouse’s, the amount of savings you have and the amount of debt incurred.
  • Single adults without dependents. Unless you would like to use insurance for the purposes of estate planning, you will only need insurance to cover expenses for burial and debts.
  • Children. Typically, children only need life insurance to cover burial expenses and medical debts. An insurance policy could also be used as a long-term savings instrument, in some instances.

Scarsdale accountant Paul Herman is here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Larchmont NY, Scarsdale NY, Purchase NY, Mount Kisco NY, Briarcliff Manor NY, North Salem NY and beyond.

Photo Credit: wtlphotography via Photopin cc

Filing Status Implications

Westchester tax preparation Herman & Company CPA’s has all the answers to your personal finance questions!

For married taxpayers, the implications of filing a joint or separate return extend beyond tax rates and the standard deduction. Like many aspects of income taxation, there is usually more than one approach to finding the optimal solution. We have listed some of the more common implications of filing either a joint or separate return. Although not an exhaustive list, it highlights several issues to consider.

Some of the implications of filing a joint return include (among others):

  • The requirement that individuals who file a joint return cannot be claimed as dependents on another return. This can be important when married students are still supported by their parents.
  • An individual who files a joint return is not subject to the “kiddie tax” provisions.
  • Joint filers are both responsible for the tax on their joint return. Thus, nontax factors should be considered (i.e., questionable business transactions). In addition, divorced taxpayers will each be liable for tax, interest, and penalties due on a joint return filed before the divorce.
  • Finally, monthly Medicare premiums can increase substantially for a couple filing jointly versus filing separately, especially for a lower-income spouse.

The implications of filing a separate return include (among others):

  • If one spouse itemizes deductions, the other must also, even if total deductions are less than the standard deduction.
  • Taxpayers can generally only deduct expenses they actually paid versus those paid by either.
  • Credits for child care, adoption, education, and earned income are generally not available.
  • If separate filers lived with their spouse during any part of the year, a greater percentage of social security benefits may be taxable because the income threshold for determining the taxable amount is reduced to zero.
  • The exclusion of gain on the sale of a principal residence is limited to $250,000 (each) for separate filers versus $500,000 for a joint return.
  • The $25,000 passive loss exception for actively managed rental real estate may be totally or partially lost. Also, one spouse’s passive income cannot be offset by the other spouse’s passive losses.
  • The limit on the capital loss deduction on a separate return is $1,500 (each).
  • No exclusion is allowed for interest income from Series EE bonds used for higher education expenses.
  • The deduction for interest on qualified education loans is not available.
  • Taxpayers filing separate federal returns typically must also file separate returns for state income tax purposes.

There you have it: the implications for married taxpayers filing jointly or separately. Please contact us to discuss the most advantageous filing status or any other tax compliance or planning issue.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.