Relationships are complicated, but even more complicated can be making a relationship official by law. We don’t mean that the actual ceremony can be tough to maneuver; we mean that all of “fun” administrative issues that come along with life can become more complicated by legally merging your lives. Part of that complication comes in the form of retirement benefits and tax consequences.
Below we’re going to look at how your government retirement plan may be treated depending upon the type of commitment you have with your spouse or partner. It is important to understand how these benefits are handled before you officially join your lives or before you head for divorce so that you can preplan for life’s “what ifs.”
How marriages are treated
When two individuals enter a valid marriage recognized by the state, they maximize the retirement benefits they can capitalize upon when at least one spouse is a government employee. The Federal Employees Retirement System (FERS) provides government civilian employees with retirement benefits through the Basic Benefit and Social Security, as well as the benefits available to couples who are in a civil union discussed below.
Some of the benefits the spouse of a retired government employee can expect to receive are:
- Survivor benefits for the remainder of his or her life upon the death of the retired employee spouse, however a subsequent marriage can trigger and end to this financial support.
- Insurable interest survivor annuities can be taken out to provide a spouse a level of financial support for the duration of the government employee’s lifetime unless you are provided a spousal benefit instead.
- Health insurance may be available even after your eligible spouse passes away provided you are entitled to a monthly survivor benefit.
Spouses who have divorced a retired government employee are entitled to either a former spouse annuity, which must be voluntarily elected by the employee or awarded by court order as part of a divorce settlement, or a one-time, lumpsum benefit.
Regarding the tax implications, legally married couples can benefit by filing a joint tax return that can result in paying less in federal taxes, and avoiding tax penalties that come with real property transfers when a spouse passes away.
How civil unions are treated
According to the Office of Personnel Management for the United States Government, same-sex couples who are in a civil union will not be treated the same as a legally married couple when it comes to doling out retirement benefits. Partners are simply not afforded the same priority as spouses, making them ineligible for the majority of marital benefits offered to government employees as their careers come to a close.
Two federal benefits that may be extended to partners include:
- Long term care insurance. Under the Federal Long-Term Care Insurance Program (FLTCIP), domestic partners who qualify under the law are treated as relatives of Federal employees and annuitants.
- Insurable interest annuities. Employees can elect to take out an insurable interest annuity at retirement for anyone, including partners to a civil union provided all of the standard qualifications are met to take out an annuity. Be aware that this type of annuity provides different survivor benefits than what is offered under a spousal survivor annuity benefit for a legal spouse.
Maryland no longer recognizes civil unions and, therefore, partners who were considered spouses for all intents and purposes when it came to legal status for retirement benefits and other issues no longer have the same rights as married couples.
Depending upon what your future with your partner looks like, you may find this a relief, or you may feel that it is time to sit down and have a discussion with one another and your family law attorney about whether marriage might offer you both more protection. You can include in those talks whether a prenuptial agreement might help manage complicated financial issues upon marriage or death.
Additionally, while you would need to file separate tax returns, the full tax ramifications of a civil union, as opposed to being married, are far too complex to examine in detail here, which is why we recommend that you speak with a professional. These are tough conversations to have but can spare you a lot of difficulties down the road.
The knowledgeable Rockville divorce attorneys at McCabe Russell, P.A. provide clients the specific guidance they need to protect themselves from financial catastrophe in the years to come. To schedule an in-depth consultation, please call 443-917-3347, or feel free to reach out to us through our contact form. We also maintain offices in Columbia, Bethesda, and Fulton.