All about love? Marriage has pension and tax considerations
Matrimony is a legal contract which gives both parties new rights and obligations
The advantages of being married from a financial and legal perspective may only be evident “once or twice in a lifetime” – but these events tend to have huge financial significance. Photograph: Getty Images/Pixland
Given the recent historic vote in favour of gay marriage, same-sex couples all around the State may now be thinking about making their union official. But, while legislation introducing gay marriage will not be in place until the autumn, there may be plenty to think about between now and then. After all, as straight couples have known for years, marriage is not just about love. It’s a legal contract which gives both parties new rights – and also obligations.
Couples who have entered into civil partnerships will already be entitled to most of the benefits – and obligations – of marriage, but for those thinking it may be time to get married, here are some pointers.
As Billy Burke, head of employment tax services with KPMG, notes, the advantages of being married from a financial and legal perspective may only be evident “once or twice in a lifetime” – but these events tend to have huge financial significance.
Tax and married couples
According to Burke, getting married is only beneficial for tax reasons in certain circumstances. “It benefits a situation either where one party is not working or is in a job where their full income tax bands are not used,” he says, adding that where two people are earning €34,000 a year or more, there is no real benefit.
Consider a couple who both earn €50,000 each a year. If they are married – or in a civil partnership – they will pay an effective rate of 29 per cent on their income of €100,000. This means that they get to keep €70,831 a year, or €5,903 a month, with the rest going to the exchequer. If they are not married, they will each have take home pay of €2,951 a month or €35,415 a year.
So which couple does best? Well the unmarried couple get to keep €70,830 a year – so the difference is just €1! The real benefit comes into play when, as Burke says, one member of the couple isn’t working.
Take a couple where one person earns nothing, and the other pays tax as a single person on €50,000. As already outlined, this person will get to keep €35,415 a year after tax.
If that couple was to get married however, their annual disposable income would rise to €38,865 – so they would benefit to the tune of €3,450 a year from being married.
Over the course of 20 years, this differential translates into €69,000 – definitely something to think about.
Another benefit is the stay-at-home allowance. At €810 a year, this is given to married couples or civil partners who are jointly assessed for tax where one person works in the home caring for a dependent person, typically a child, and where their income is less than €5,080 a year.
The impact of this credit is to push up a married couple’s take-home income to €39,675 a year – pushing the differential between the unmarried couple up to €4,260 a year, or €85,200 over 20 years.
Remember also that if getting married will see you pay less tax, you can claim a refund of tax in the year that you were married. Refunds are typically granted the following year – so if you get married in 2015 for example, any tax refund due to you will be calculated after December 31st, 2015.
And there can be other tax benefits. Capital gains tax for example, which is levied at a rate of 33 per cent, does not apply to transfers between spouses, while no stamp duty is also paid on transfers of shares between spouses. And, losses can be shared between spouses, which means that if one spouse is carrying a loss on an investment, they can use this to offset the gain of the other spouse.
Preparing for retirement
Typically, pension benefit is restricted to spouses (or civil partners) or dependent children, and nominating people other than these two categories to benefit from a pension isn’t really an option.
“If someone is fortunate enough to be a member of a scheme that provides for spousal benefit in the event of the employee’s death, then the spouse can qualify for full or partial pension based on what the employee would have got,” says Burke. “In the event the couple is not married, then that’s the end of it [the pension]”. So if you have a pension that offers spousal benefit, it can be of enormous benefit if your partner can access this should you die.
Another benefit that can arise is with respect to the state pension. If one party dies, and the surviving person doesn’t have enough PRSI contributions in their own right, then they might be entitled to a widow’s or widower’s pension. This applies both to married couples and civil partners.
If you’re married/civil partners, you can transfer assets to your spouse free of tax. If you’re not, it’s like your partner is a stranger as they will have a tax-free allowance of just €15,075 – and will have to pay tax at a rate of 33 per cent on the rest of the estate.
Being married can also protect your rights to inheritance in the first place.
Under the Succession Act 1965, your spouse has a legal right to a minimum of one-third of your estate no matter what your will might say.
This does not apply to cohabiting couples. Indeed if you’re a cohabiting couple, and one of you die without a will, then your partner has no right to a share of your estate, apart from what was held jointly.
But it’s not just about death. Problems can also arise for cohabiting couples if the couple splits up. If one of the couple for example owns a home, then this person who holds the legal title to the home will retain it – even if the other person contributed to the mortgage. However, there is a potential resolution to this, as the injured party can seek a property adjustment order to claim their share of the property.
Civil partnership in France for example, commonly known as PACS, was not previously recognised in Ireland.
“We’ll have to wait to see are they going to specify what foreign arrangements abroad will be recognised,” says Burke.
And the reverse may be true for same-sex couples, married under Irish law, who go live in another country. They may find that their Irish marriage is not recognised under local laws.
“It is certainly something to think about,” notes Burke.
If it all goes wrong
Apart from the emotional burden of a marriage breaking up, the financial one can also be significant.
Legal fees for a divorce will start at about €2,000, with average costs of around €7,000, but can quickly reach five figures depending on the case – and you can double this given that both parties may need legal representation.
Depending on the complexity of the case, a barrister may also be required, with fees for a High Court case reaching six figures.
If you have a well-considered separation agreement, it may be possible to go down the DIY route for divorce, which can save you.
Another option is to apply for free legal aid, from the State-funded Legal Aid Board. However, it is very strictly means tested, and after accounting for tax and allowances, such as your mortgage, and the number of children you have, your income needs to be less than €18,000 a year to qualify.
Depending on where you live, you may also be faced with lengthy waiting lists for access to aid.
But while there is an expense, marriage does ensure a fairer distribution of assets and offers greater protection than cohabiting, although the legal framework for this has improved significantly in recent years.
“Qualified cohabitants” for example, also have rights in the event of a marriage breakdown and can apply to the courts for various financial reliefs including a maintenance order, either periodic or lump sum; a pension adjustment order; and a property adjustment order.
However, to qualify for such payments, the person must prove their financial dependence on the other cohabitant, something that doesn’t arise for married couples.