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Entering Into a Civil Union to Avoid the Marriage Tax Penalty

Entering Into a Civil Union to Avoid the Marriage Tax Penalty

By: M. Scott Gordon

Prior to the legalization of same-sex marriage in Chicago and across Illinois and the country, civil unions provided same-sex couples with the ability to have many of the legal rights and obligations associated with marriage. Indeed, under the Illinois Religious Freedom Protection and Civil Union Act (750 ILCS 75/), “a party to a civil union is entitled to the same legal obligations, responsibilities, protections, and benefits as are afforded or recognized by the law of Illinois to spouses.” As of 2014, however, same-sex couples who are Illinois residents have been able to get married under Religious Freedom and Marriage Fairness Act. That law makes clear that “all laws of this State applicable to marriage . . . shall apply equally to marriages of same-sex and different-sex couples and their children.”

Since the passing of Illinois’s same-sex marriage law, same-sex marriage has become legal throughout the country. Why, then, would couples continue to opt for a civil union instead of entering into a marriage? According to an article in Forbes Magazine, the answer (at least in some cases) may have to do with the marriage tax penalty.

Civil Unions as Potential Tax Shelters

When we say that some couples may be opting for civil unions instead of marriages, we do not just mean same-sex couples for whom marriage was not previously an option. Indeed, according to the article, most of the couples who are opting for same-sex unions as opposed to legal marriages are actually heterosexual couples. As the article explains, “by choosing a domestic partnership or civil union over marriage, opposite-sex couples are able to avoid paying a federal income tax marriage penalty.”

Selecting civil unions over marriage is not a new practice. As the article explains, since many civil union laws went into effect—in Illinois and in other states across the country—heterosexual couples began taking advantage of the way in which a civil union would provide certain benefits of marriage but also allow them to avoid the marriage penalty.

Understanding the Relationship Between the Marriage Tax Penalty and Civil Unions

In order to understand why a heterosexual couple might choose a civil union for the reasons we have discussed above, it is important to understand precisely what we mean when we refer to a marriage tax penalty. In short, “married couples (of whatever gender) pay a marriage penalty if the spouses make similar incomes.” However, “if one spouse earns substantially more than the other, the couple may enjoy a marriage bonus.” How does this work?

According to a calculator from the Tax Policy Center, when a newly married couple combines their income and files a joint tax return, their combined incomes can push them into a higher tax bracket. In other words, then, the couple can “suffer a ‘marriage penalty’ if its partners pay more income tax as a married couple than they would have as two single individuals,” according to the Tax Policy Center.

If you have questions about whether you should be thinking about entering into a civil union or a marriage, an experienced Chicago family law attorney can discuss the pros and cons of each with you. Contact M. Scott Gordon & Associates today to learn more about how we serve clients throughout Chicagoland.