The financial implications of tying the knot
I’ve never been wedding-crazy. I wasn’t that little girl who fantasized about her wedding. The white dress, the church ceremony, the big reception — it just never appealed to me. I’ve been in a committed relationship for more than five years, and we’re not married. We know we’re meant to be together and have no reason to believe that getting married would make an emotional difference to us, but lately, I’ve been wondering what sort of financial benefits we are missing out on by not tying the knot. Should I consider getting married because it’s better financially?
There’s no doubt there are financial benefits of getting married — and we’re not just talking about wedding gifts. Once you say “I do,” you are eligible for certain tax breaks and exemptions, and you may have access to other long-term benefits like a spousal IRA or survivors benefits from Social Security.
Here’s the breakdown of the top benefits — and the unexpected pitfalls — of walking down the aisle.
Your Love Nest Is Cheaper
Perhaps the most obvious benefit of getting married (unless you’ve previously cohabitated) is sharing living expenses.
“One of the biggest financial benefits of getting married is the ability to share living expenses like housing, utilities and food without those expenses necessarily doubling,” says Liz Davidson, founder and CEO of Financial Finesse and author of What Your Financial Advisor Isn’t Telling You: The 10 Essential Truths You Need to Know About Your Money.
The old adage, “opposites attract” may also work out in your financial favor, Davidson notes.
“[S]penders often marry savers, which can be a tremendous financial benefit for the spender if they are in a healthy relationship built on communication and mutual respect,” she says. “When a spender marries a saver, and they are able to find a healthy compromise in their habits that helps them to achieve their goals together, it’s often the spender who has the most benefit because they often have a serious lack of savings and sometimes huge amounts of high interest rate credit card debt.”
A spender’s habits can have lasting negative effects, like delayed retirement, financial stress, and health problems, she explains. “A saver spouse can balance that out by encouraging the spender spouse to prioritize healthier financial habits — in effect, a saver sometimes ‘saves’ a spender from themselves!”
This is something Davidson employs in her own life.
“I write about this in my book, particularly about how my husband and I have differing money values – he values things like his antique car collection, whereas I prefer experiences like travel or a great meal,” she says. “But even though we’re different, it doesn’t mean we can’t get on the same page and avoid money fights.”
Getting married may also give you access to better health insurance coverage than you could obtain if you were single, she says. For example, if you are a freelance writer and have to pay out of pocket for insurance, but your new spouse works for a major corporation, your health insurance could be much cheaper (hundreds less per month), and you could get perks like free prescriptions and lower (or no) copays.
Doing Your Taxes Just Got a Lot Sexier
Filing your taxes jointly is another marriage benefit. This could mean paying a lot less (or more) next tax season, depending on your new combined income.
For example, if you and your spouse are both high earners and file jointly, that could bump you into the next tax bracket, meaning a potentially hefty bill next tax season. But if one of you earns significantly less than the other and you file jointly, your combined income will be taxed in the middle, resulting in a lower tax bracket for the high earner.
The standard deduction allowed for married couples is also twice what it is for an individual. So, if you’re married and filing jointly, the standard deduction is $12,600. If you were single, you could only claim $6,300. (This is if you choose not to file an itemized deduction.)
Also, say hello to the unlimited marital deduction, which basically means you can transfer an unlimited amount of funds or property to your spouse without having to pay estate or gift taxes.
So, if your husband or wife leaves you an inheritance of $100,000, you will receive the full amount. If you are gifted that amount by a non-spouse, you will have to pay the gift tax, which applies to all monetary gifts more than $14,000.
Married couples also get access to a pretty hefty home sale exclusion — to the tune of $500,000 — when they sell their primary residence for a gain, as long as they lived in the house for the two years immediately prior to the sale. This is nearly twice what singles get.
“[A] married couple can exclude up to $500,000 of a qualified gain, while a single person only gets a $250,000 exclusion,” Davidson explains. “Married people also enjoy double the exclusion of assets from the estate tax that single people have.”
But there are some potential downsides to filing taxes once you’re married, too.
“You can receive a larger standard deduction, but remember that your incomes will now be combined. If each spouse earns $100,000 then you will have a household income of twice that amount, meaning your effective tax rate (and tax bracket) will likely go up,” says Brannon Lambert, CFP® at Canvasback Wealth Management, LLC.
But being married may allow you to get some deductions you weren’t eligible for previously, he notes.
“However, you may qualify for some deductions you didn’t previously because you are combining expenses,” he explains. “Medical expenses are one example. You can deduct out-of-pocket medical expenses that exceed 10 percent of your adjusted gross income.”
Davidson also cites the possibility of an increased tax bill as a major con.
“One of the bigger drawbacks is the way the income tax code is currently structured,” she explains. “The ‘marriage penalty’ is very real in terms of how the marginal income tax brackets work.”
But this depends on your income.
“It definitely depends on your income – two people with higher incomes will experience the marriage penalty. The more unequal the partners’ incomes are or the lower they both are, the less likely they will pay more in taxes as a married couple than as singles,” Davidson explains.
Living Happily Ever After
Your retirement may also get a boost. Getting married gives you access to retirement savings options you may not have otherwise had, like a spousal IRA.
“An individual is only able to contribute money [to an IRA] to the extent he or she has earnings, but if you’re married to someone who has earnings and you don’t, you may still be eligible to contribute,” Davidson explains.
Keep in mind getting married may actually prevent you from being able to open certain retirement accounts, like a Roth IRA.
“Getting married could have an impact on your ability to utilize accounts such as Roth IRAs,” Davidson says, noting that if you were married and filing jointly and your modified adjusted gross income (MAGI) was more than $184,000 in 2016, you were not able to contribute to a Roth IRA.
And once your spouse passes away, being legally married will only help you.
“Spouses do get a spousal benefit for pensions and Social Security which a non-spouse would not,” says Tana Ackerly Gildea, author of The Graduate’s Guide to Money. “In the absence of a will, the spouse does have a claim to assets of the deceased spouse.” The particulars vary by state so it’s always better to have a will than not, she notes.
Increased Social Security benefits are another plus. As a married person, you can take a Social Security payment of half of what your spouse gets, even if you are not entitled to that amount on your own; then survivor benefits when your spouse die can be as 100 percent of what your spouse’s benefit.
You can roll over and combine their retirement assets with your own when your spouse dies, which can allow you to enjoy that tax-free growth for longer. (There are stricter rules governing withdrawals for non-spouses who are left retirement accounts.)
“The IRS allows the qualified retirement assets of one spouse to be rolled and combined into a retirement accounts of the survivor and take ownership as their own,” Lambert says. “A non-spousal beneficiary has to begin required minimum distributions soon after they receive the inherited retirement assets.”
The Whole Financial Picture
While there are many financial factors to consider, here’s the truth of the matter: Whether or not getting married is financially beneficial has less to do with the benefits afforded and more about the person you’re actually marrying — and their financial health.
“I would never advise somebody to get married just because they may deem it to be financially beneficial,” Lambert says. “You may live together for years and years like a married couple and you may even co-mingle finances, but marriage can have a funny effect on people.”
Making finances a part of the conversation is also a must, Lambert says.
“If you are thinking about getting married you must sit down with your partner and be completely open and honest about your past, present and future financially. I’ve seen situations where one person hides money issues from their partner until the wedding. They were afraid to tell their fiancé out of fear of being left. That is no reason to blind side your new bride or groom with a financial atomic bomb,” he says.
So is getting married the right financial choice?
“Not necessarily, and especially not for women. I think women still tend to put their careers more on the back burner in a marriage and when they have children than men do,” Gildea says. “It is important for woman to keep their economic power whether they marry or don’t and sometimes not marrying — at least for awhile — keeps that a bit more in the forefront of their minds.”