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First comes love and then comes marriage, right?
The idea of marrying for love is relatively new, despite what pop culture might have you believe.
When it comes right down to it, getting married forms a legal contract. As such, there are financial pros and cons to marriage worth considering before you walk down the aisle.
The Financial Pros of Marriage
When you tie the knot, it isn’t just about saying “I do” in a seaside ceremony or dancing the Funky Chicken with 100 of your closest friends and family.
Often, we focus so much on the personal, emotional, familial, and even religious aspects of saying “I do”, we forget about the financial side.
Besides the fact that sharing finances and goals can benefit a couple, once you’re officially married in the state’s eyes, there are several financial advantages you and your spouse may get to enjoy.
1. Health Insurance Benefits
If both spouses have health care offerings through their workplaces, you can shop around to see which spouse’s benefits are best.
Of course, you might find that carrying separate insurance also makes sense, depending on how your workplace benefits are set up.
Another benefit of marriage regarding employee benefits is that you may be able to mix and match.
One spouse might carry health insurance through their workplace, while the other spouse might have better options for Flexible Savings Accounts (FSAs) or life insurance.
Finally, if one spouse has employer-sponsored benefits, and the other spouse does not, that health insurance through the traditional workplace may be less costly or more comprehensive than anything available on the exchange.
2. Auto Insurance Premiums
Many factors influence the cost of your car insurance premiums. Surprisingly, your relationship status is one of them.
Married couples pay an average of 11% less on their auto insurance premiums than non-married couples. Research indicates married couples have fewer accidents. It’s also possible that premiums are lower due to a multi-car discount.
Interestingly, people also report their car insurance premiums increase after changing their status back to single following a divorce.
3. Social Security/Pension Benefits
Many people count on Social Security to support them in at least some capacity in retirement.
When you’re collecting Social Security and pass away before your spouse, your spouse is likely to be eligible for survivor benefits up to the full amount of your Social Security benefits.
When you hit retirement, and you’re able to collect a pension, that likely has a survivorship benefit that functions similarly to Social Security. So, if you die before your spouse, they can continue to collect survivor’s benefits from your pension.
4. Spousal IRA
About 1 in 5 families have either a stay-at-home mom or stay-at-home dad. That means one partner may earn very little or no income (while still providing something invaluable to their families, of course!). And they need to be protected.
Since being a stay-at-home parent prevents them from accessing a 401k or other workplace-sponsored retirement plan, it may seem like retirement savings are off the table.
Not so thanks to the spousal IRA.
A spousal IRA allows an income-earning spouse to make contributions to a non-income earning spouse’s retirement account. You can choose the same options–traditional or Roth IRA–and the spousal IRA is held in the non-income making spouse’s name.
- Recommended: How We’ve Lived on One Income for 20 Years
5. Estate Tax
Under the current tax law, spouses can leave any amount of money to their spouses in their estate plans. The surviving spouse is exempt from having to pay any estate tax.
While this certainly may not be something everyone needs to worry about, there are many ways to acquire wealth over your lifetime as a couple. This benefit may help you preserve that wealth.
6. Gifting Tax
Unmarried couples have to file gift tax returns if they give anyone, including their significant other, more than $15,000 (in 2020) in a single calendar year.
Married couples who are both U.S. citizens are exempt from this rule. That means spouses can gift one another unlimited amounts of money each year.
While this may seem like a benefit only necessary for people living rich and famous lifestyles, it can be a helpful estate planning tool.
The Financial Drawbacks to Marriage
While there are many financial benefits to marriage, there can also be some disadvantages. There are myriad reasons why people are choosing to not ever legally tie the knot. In fact, the marital rate landed at a historic low in 2018.
For some people, these financial cons to marriage may play a role.
1. Marriage Penalty
The so-called marriage penalty is oft-cited, but what does it actually mean?
The marriage penalty tax is used to reference the extra tax some married couples may find themselves paying.
Under the new tax laws, a married couple with two similar incomes that are either high or low will likely pay more in taxes than unmarried couples who file taxes separately.
This penalty shows up in other parts of the tax law as well. First and second mortgages come with tax deductions relating to interest.
Homeowners can deduct up to $750,000, whether they are married or filing separately. That means that a couple who has not legally tied the knot can each take a deduction, which a married couple is only entitled to the one deduction for the same amount.
2. Combined Debt
Knowing how much–if any–of your finances you’re going to combine as a couple is a personal choice. No matter how you arrange your finances, though, a marriage can often mean more debt.
While it’s true that many marital units are dual-income households, they’re likely also dual debt households, at least at the start. That means you might bring student loans to a marriage, and your spouse might have consumer debt.
Now, you have to find a way to tackle both debts as a couple. It’s certainly possible, but having a plan and being open and honest about future financial decisions will be vital to getting it done.
3. Blended Families
To be classified as a blended family means your family includes a stepsibling, stepparent, and/or half-sibling. According to the last census, 16% of families indicated they were blended families.
The unique makeup of a blended family can sometimes pose unique money challenges. Navigating alimony and child support are two of the most apparent financial obstacles.
However, there may be other challenges centered on child-rearing and conflicting money beliefs of all the adults involved in raising the children.
4. Divorce
One of the most significant financial implications of marriage centers on the end of a marriage. Divorce can be expensive.
The average cost of divorce in the United States is around $15,000 per person. That number reflects the cost of the divorce itself, not necessarily the division of assets.
If you married without a prenup and didn't obtain a postnup, there could be other significant financial implications when getting a divorce.
Final Thoughts on the Financial Pros and Cons to Marriage
No two relationships are the same. That’s why each couple must make the decision that’s best suited for them and their situation.
There are many financial pros and cons when it comes to romantic unions.
You don’t need to let money make your marital decision for you. But you should consider the economic benefits and the drawbacks as you determine what’s right for your relationship.
Next: Financial Planning: what, why, and how to create a financial plan
Article written by Penny
