There's no denying that getting married comes with plenty of great benefits – as long as it's to the right person! From the emotional joys of companionship to the excitement of starting a family, married couples share a unique bond that many consider priceless.
But are there any financial benefits to tying the knot? Jesse Cramer and I recently sat down to dive headfirst into the financial pros and cons of marriage – after securing the blessing of our wives, of course!
Jesse is a member of the team at Cobblestone Capital Advisors, a fiduciary wealth management firm that specializes in helping clients live their best financial lives. He's also the creator of The Best Interest, a nationally acclaimed blog and podcast that breaks down how to take control of your financial destiny.
Throughout our discussion, Jesse provided some great insights into the financial implications of taking the marital plunge. Whether you're thinking of getting married for the first time or considering remarriage later in life, check out this handy breakdown of the financial pros and cons of marriage.
The Financial Pros of Marriage
Let's start with the good news! As Jesse put it, “There is a significant financial advantage to getting married, as long as you're sure it's the right person.”
As any married couple can attest, a successful marriage requires a great deal of commitment and communication. But if both spouses are willing to put in the work, marriage can be a boon to your shared financial health. Let's explore some of the potential financial benefits of marriage.
Combining Bills
Let's state the obvious! Marriage cuts your bills in half. You can look at it another way. It doubles the income you can work with to tackle those bills.
If you and your spouse decide to split your expenses, you'll both enjoy a 50% discount on everything from your rent or mortgage to utilities and living expenses.
Alternately, some couples work out an arrangement where one spouse covers the bills and the other uses their income to tuck aside money for the future. Whether you decide to combine bank accounts or develop a shared plan for increasing your family wealth, two incomes are always better than one!
Possible Tax Benefits
When it comes to paying income taxes, marriage may either turn out to be a pro or a con, depending on the situation. In order to demonstrate what we mean, let's take a look at the tale of a couple named CEO Samantha and Average Earner Allen.
As you may have guessed from her telltale name, Samantha is a high-powered CEO who takes no prisoners in the boardroom and has a bank account that reflects her skills accordingly. Samantha's husband Allen is a dashing, yet criminally underpaid EMT, who won Samantha's heart after saving the life of one of her colleagues at a business lunch gone terribly wrong.
If the couple chooses the “married filing jointly” (as opposed to “married filing separately”) option when paying income taxes, Samantha will likely enjoy what's commonly known as a marriage bonus. The marriage bonus kicks in when the combined income of a couple qualifies the higher earner for a lower tax bracket, allowing them to pay fewer taxes than they would if they were filing separately.
Insurance Perks
While the old “divide and conquer” tactic may work in some situations, insurance isn't always one of them! From car insurance to health insurance, married couples often enjoy lower rates if they choose joint coverage. Many employer-provided health insurance plans also offer spousal coverage, which is definitely an option worth considering!
The Power of the Spousal IRA
While you generally have to earn taxable income in order to contribute to an Individual Retirement Account or IRA, married couples enjoy a notable exception called a Spousal IRA. Let's demonstrate how it works with the story of a married couple named Working Walter and Stay-at-Home Mom Maggie.
When Maggie recently gave birth to twins, the couple decided that Walter would continue to go out and bread win each day, while Maggie would take a few years off to be a stay-at-home parent. In order to keep their retirement plans on point, Walter opened a spousal IRA in Maggie's name.
Not only can Walter max out his individual IRA contribution limit for the year, but can max out Maggie's account too. This can be a handy workaround for couples filing jointly, particularly when one spouse is making little or no income.
Possible Credit Score Perks
The bad news is that getting married to someone with a great credit score won't do your own any favors. While marriage doesn't directly impact your credit score in any way, your spouse may be able to score a far better loan than you would alone.
Lenders tend to take both spouses' credit scores into account if you're applying for joint loans. So, in some instances, it may be worth having the spouse with the better score apply individually until the other partner is able to bring their credit up.
Estate Tax and Social Security Benefits
While you hopefully won't enjoy them until much later in life, marriage offers several financial benefits for a surviving spouse after their partner passes away. Spouses can gift each other with tax-free assets at any time, whether in life or death.
This even applies in the case of estate plans, where the surviving spouse can inherit money or other assets after their partner's death. Similar benefits apply to social security benefits- if the higher-earning spouse passes away first, the remaining partner will inherit their higher benefit payments.
The Financial Cons of Marriage
Ready to wade into dangerous territory? Let's take a deep dive into the potential financial cons of marriage and how to keep them from happening to you!
While none of the following financial cons need necessarily be deal breakers, simply taking the time to have a conversation about them can go a long way. When both partners head into the marriage with clarity, it creates a solid foundation that you can build on for a stronger financial future.
Inheriting Your Partner's Spending Habits
Okay, so marrying someone who has a tendency to splurge a little too often may not mean that you'll pick up the same habits. But it can make for a frustrating situation if your new partner consistently fails to contribute to the financial health of the family.
It may also make the most responsible partner rethink the idea of opening a joint account. In addition to getting on the same page about incurring more debt, you should also sit down together and take an honest look at how much debt each of you is currently juggling.
While you won't technically inherit your partner's debt from a legal perspective, you may feel more of an obligation to help them tackle it once you officially change your marriage status. Paying off debt together can go a lot smoother when you agree on a plan of attack, whether it be a fixed payment plan or figuring out ways to pull in a higher joint income.
Financial Accountability and Communication
There's no way around the fact that getting married takes a certain degree of independence out of “financial independence”! Marriage is emotional and spiritual. It is also a legal contract that comes with shared financial accountability.
Communication is not only essential, even for higher-income couples, but it can literally make or break your family's long-term financial security. You want to talk about everything from family budgeting to saving for retirement!
Potential Marriage Penalty Considerations
While some married couples pay fewer taxes due to the magic of the marriage bonus, others end up saddled with a so-called marriage penalty. A marriage penalty occurs when a couple who files jointly ends up having to pay higher taxes than each would if they filed separately.
Because tax brackets are calculated differently for single filers vs. married folks, the marriage penalty tends to affect couples who have similar incomes. In some cases, low-income couples may also lose eligibility for financial perks like the Earned Income Tax Credit or EITC. On the other hand, they may end up being eligible for perks like a child tax credit if they decide to have kids.
Divorce: The Ultimate Financial Con
While few couples tie the knot expecting their marriage to end in divorce, the unfortunate fact is that plenty of married people split up every day. As you'll quickly discover if you find yourself in this situation, divorce is expensive!
If one partner earns significantly more than the other spouse, they may also take a financial hit when the time comes to divide marital assets. While avoiding divorce is advisable for plenty of reasons, the fact that it comes with major financial disadvantages is certainly one of them!
The Alimony Implications of Remarriage
Getting remarried may affect any financial benefits that you're currently entitled to from a previous marriage. For instance, if you are receiving (or paying) alimony or child support, getting married again will introduce a whole new dynamic to the arrangement.
We aren't saying to say no to the proposal! But be sure that you have a conversation with your attorney or a certified financial planner so that you can head down the aisle with clarity.
How to Reduce the Financial Cons of Marriage
How do you dodge the potential financial drawbacks of marriage? Jesse summed it up brilliantly with a single piece of advice, “talk, talk, talk, plan, plan, plan.”
The bottom line is that marriage requires a great deal of trust, communication, and transparency. Don't be shy about getting the ball rolling with financial discussions before you share a walk down the aisle.
Sometimes prenuptial agreements can be a tricky subject! But in some situations, they also make for a conversation worth having! This is particularly true in situations where there's a great deal of income inequality or if one spouse has far more assets (or more debt) than the other.
A well-negotiated prenup can offer financial protection for both parties. It guarantees that each will be treated fairly in case things go south. Be sure you also talk to your attorney about how the agreement could be affected if one or both partners' financial situation changes down the line.
Whether you choose to go the prenup route or not, it's important to commit to having regular discussions about finances. Commit to talking each month or even every week. In these chats, you can strategize about the future and what each hopes to accomplish.
The goal here is to create a game plan. This plan takes into account shared goals, as well as those of each individual partner. You can achieve a debt-free marriage, buy a house, or build generational wealth. In fact, when you are on the same page, you can accomplish almost any goal!
Final Thoughts on the Financial Pros and Cons of Marriage
It's important to weigh the financial pros and cons of marriage because no two marriages are exactly alike. Each comes with its own unique set of financial benefits and potential drawbacks. The important thing is to keep those lines of communication flowing!
No matter how many cons you and your partner may find yourself initially faced with, there's no limit to what you can accomplish if you commit to working together! Think about joining a gym! Signing up for a gym doesn't equal getting in shape overnight. The same is true for money. Reaching your financial goals as a married couple takes time.
But the more shared goals you achieve, the stronger your shared financial future – and relationship – will become.
What are the financial pros and cons of marriage from your perspective? Did we miss anything?
Please let us know in the comments below!
