by Hendrix Berry
Sustainable Community Coordinator
Unequal rights for same sex couples and straight couples didn’t stop people from falling in love and committing to their relationships, but it did limit couples’ financial options. Marriage equality means more financial choices for same sex couples, but just like for straight couples, getting married legally is not always the best financial choice. There are a few financial pros and cons all couples should consider before deciding to tie the knot. Don’t take love advice from your financial advisor and don’t let financial decisions spoil the love you share, but do prepare by researching and getting advice on the financial effects of marriage for you and your partner beforehand.
Most people have heard that there are certain legal benefits to being married that non-married couples aren’t afforded, but what are those benefits exactly? Everyone should understand that marriage can also come with financial costs, so what costs should you consider? It depends on your particular financial situation and a handful of important factors described below.
- How does your income compare with your partner’s income?
- Do you or your partner have kids? How old are they?
- Are either you or your partner a widow or widower?
- Are your retirement interests or plans similar or compatible?
- How close to retirement are you and your partner?
- What health insurance and retirement options are available to you and your partner?
Why do these factors matter?
- Federal Income Tax Bracket
Couples that are high income earners may be bumped into a higher federal tax bracket after marriage, regardless of whether they’re filing taxes jointly. For example, a couple in an unmarried relationship who separately earn $160,000 and $150,000 a year fall into the 28% tax bracket. However, if they were married, this couple’s combined income totaling $310,000 would bump them both into the 33% tax bracket, whether they’re filing their taxes jointly or not.
- Paying for College
If you and/or your partner has a child nearing college age, consider how combining you and your partner’s income will affect financial aid. A combined household income could hurt qualification for financial aid, depending on who the child depends on. For many colleges the spouse with lower income can claim the child as a dependent and the second spouse’s income will not be taken into consideration. This is not the case with every college, though.
- Gifting Assets & Estate Planning
When someone gives their friend, child, or other non-spouse family member a gift worth over $14,000 in a single year (as of 2015), a gift tax is due, or you reduce your estate tax exemption. However, when someone gives to their spouse, there is no limit and no tax. This creates opportunities to reduce or avoid estate and gift taxes through marital estate planning.
- Employee Retirement and Health Insurance Benefits
Retirement and health insurance benefits are often extended to an employee’s spouse if they are legally married. If the couple is not legally married, a partner may not be able to benefit from their partner’s current employment benefits or future pension benefits.
- Social Security Benefits
Starting at age 60, widows and widowers can receive benefits based on their spouse’s Social Security record. Spousal benefits are also available to those who are divorced after being married for 10 years or more. Starting at age 62, current spouses can receive a benefit based on half of their partner’s primary insurance amount. Known as a “PIA”, it is an individual’s Social Security benefit at full retirement age.
The conclusion? The financial benefits and drawbacks of marriage are complicated and it makes sense to check in with a fee-only financial advisor before making it official (or before deciding to remain unmarried forever in a long-term committed relationship). Marriage should remain primarily about love, but giving thorough and thoughtful consideration to financial implications of the union can serve as an important first step to securing a successful financial future for both partners.