Increasingly, cohabiting without getting married is a common option for U.S. couples. In 1995, 58% of adults were married. That percentage has decreased to 53%. In that same time period, the percentage of U.S. adults living with an unmarried partner increased from 3% to 7%.

Finances can significantly influence a couple’s decision about which route to take. According to a study by Pew Research, 38% of unmarried, cohabiting partners cited finances as a reason why they moved in together. Only 13% of married couples said the same.

Older couples considering marriage have several pros and cons to keep in mind.

The Pros

Protections: Many benefits of tying the knot include legal protections should the couple divorce. While laws vary by state, if a married partner leaves a relationship and files for divorce, that partner may be entitled to spousal support. It’s likely they will have rights to their partner’s retirement benefits and Social Security, depending on the length of the marriage.

Inheritance: When legally married, you can inherit an unlimited amount of assets from your spouse without incurring state or federal estate taxes. You can also avoid filing a gift-tax return when giving an unlimited amount of assets to your spouse.

Married couples also benefit from inherited IRAs. The surviving spouse can roll the inherited IRA account into their own IRA and delay taking required minimum distributions until the age of 70 ½. These benefits do not apply to unmarried couples.

Real estate: When selling a home, married couples can exclude up to $500,000 in capital gains from tax, if at least one spouse has owned the home and both have lived in it for two out of five years before the sale.

The Cons

Spousal support: Marrying again means you’ll surrender any rights to Social Security from a prior marriage. It will also trigger an end to spousal support payments unless the divorce decree states otherwise. It’s possible that remarrying could also cause you to lose a deceased spouse’s pension benefits or other survivor benefits.

Taxes: If both spouses are in the 28% or higher tax bracket, their combined income could trigger a marriage penalty. A couple in the top bracket must also pay a 20% tax rate on dividends and long-term capital gains, higher than the 15% most taxpayers pay.

Healthcare: Married couples are responsible for each other’s medical bills. Rising healthcare expenses and long-term care costs can be a major disincentive for remarrying.

Making the Decision

Thinking about marriage later in life brings about many hard questions but one thing is clear, no matter your decision: Estate planning is crucial. With a proper plan in place – whether you’re single or married – you can make sure your partner has a say in handling your care and finances if you have health problems. You can also exercise more control over which assets your partner will inherit. Another important part of planning is to assign power of attorney to your spouse/partner or another trusted person so they can make decisions about your finances and healthcare in case you become incapacitated.

To control some of the variables, you may want to draft a written agreement that specifies how property and money will be divided in the event of a breakup. Many cohabiting partners track how much each person contributed to the purchase price of a home or other assets plus expenses and maintenance. Above all else, open communication will help ensure that you and your partner are financially compatible.

At Savant, we help individuals and couples leave behind a lasting legacy, including transferring wealth to family. If you’d like a second opinion on your portfolio or estate plan, we invite you to schedule an introductory call with one of our advisors.

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