Are you considering tying the knot with your partner? While the decision is primarily a personal commitment, it’s important to recognize the financial benefits of marriage.
Marriage can have monetary and other advantages for many people. However, if your partner thinks getting married would cost them more money than it is worth, do not be startled; this view is more widespread than you might imagine.
It is commonly believed that married persons contribute more to the tax system than singles do. This is not just not the case for many people getting hitched, but there are also a number of economic arguments in favor of getting hitched.
Understanding the financial benefits and drawbacks of getting married can help you make informed decisions about your future. In this article, we will discuss why.
Why get married?
Even if two people’s wages are drastically different, they can still benefit financially from getting married. For instance:
Income limits for IRA contributions are shared between spouses, so married couples can save a much larger portion of their income each year.
It is possible that a married couple can pay less in taxes as a unit than the higher-earning partner would if they filed separately.
When both partners are employed, they have the option of enrolling in either of their respective companies’ health plans.
It is cheaper to insure a car and a house under one person’s name than under two.
It is possible that the lower-earning spouse will end up receiving a bigger Social Security payment as a result of being married.
Financial Benefits of Marriage
Tax Benefits of Marriage
One significant financial benefit of marriage is the potential for tax advantages. Married couples often enjoy lower tax rates, as they can file joint tax returns and take advantage of various deductions and credits.
This can result in significant savings, especially if one spouse earns considerably more than the other. Additionally, married couples may also qualify for certain tax breaks, such as the Marriage Allowance, which can further reduce their overall tax burden.
The American marriage may feel the effects of both ends of the progressive tax system. Some couples who earn roughly the same amount are hit with a marriage penalty because their combined income puts them into a higher tax bracket.
This remains the case despite numerous attempts at reform. Both high and low income couples experience this.
In contrast, a marriage bonus may apply to couples when one spouse generates all of the income or a disproportionate share of it, as the lower income spouse’s tax bracket may decrease after marriage.
The Tax Foundation reports that while some couples may receive a 21% marriage bonus, others may face a 12% marriage penalty.
Rewriting the tax code extensively to do rid of marital advantages and penalties would have far-reaching consequences. Legislators often resort to “marriage penalty workarounds” instead.
If you and your spouse are both eligible for Social Security retirement benefits, you could receive half of your spouse’s payment.
This rule applies if your personal benefit is less than half of your spouse’s benefit. The Social Security Administration has a number of criteria that must be met before someone is considered eligible.
Divorcees over the age of 62 who were previously married for at least 10 years and have not remarried would also qualify. The divorcee’s own benefit, based on their own employment record, must also be lower than the ex-spouse’s benefit.
In the end, this helps the spouse who brings in much less money than the major breadwinner feel more secure.
Recent revisions to the Tax Code
Two parts of recent tax legislation made substantial adjustments that help married couples, especially those with kids.
The Tax Cuts and Jobs Act (TCJA), signed into law by President Trump on December 22, 2017, made a number of modifications to the tax code with the goal of reducing corporate, individual, and estate tax burdens.
Changes to the tax system gave major tax breaks to corporations while lowering income tax rates for only a few tax bands. Furthermore, the reductions that help people are scheduled to end by 2025, while the reductions that help businesses and other entities will continue.
Credit for Earned Income Tax Paid
On March 11, 2021, President Biden signed the American Rescue Plan, which provided significant tax relief for people with low and middle incomes. For households without children, the earned income tax credit will increase to $1,502 in 2021.
For the tax year 2022, for instance, the maximum Earned Income Tax Credit available to qualified taxpayers with three or more children is $6,935.
The highest credit will be $7,430 for the 2023 tax year.
The minimum age requirement for claiming the earned-income tax credit was lowered from 25 to 19, and the maximum age limit of 65 was removed.
Tax Breaks & Deductions for Married Couples
When one spouse’s income disqualifies both partners from receiving the earned-income tax credit (EIC), the resulting marriage penalty can be significant. However, if a stay-at-home parent marries someone with low income and they file jointly, the EIC can increase.
According to the Tax Policy Center, in 2020, a married couple that earned $40,000 (divided evenly) would have to pay more than $2,357 in taxes.
If they were not married, one parent could claim the two kids under their care and file as head of household.
With that setup, their combined standard deduction would be $31,050, which is $6,250 higher than the new, more in line $24,800 standard deduction for a married couple earning their income level when filing jointly.
The EITC for the head of the family is $5,779, and the child tax credit is $2,760 (the other parent is ineligible for either benefit while filing separately).
This means that the primary breadwinner is entitled to a return of $8,404 and the other parent is responsible for $760, for a grand total of $7,644.
The EITC for this couple would have been $2,807 if they filed separately, but the child tax credit would have been a far more substantial $4,000. Together, they would receive a total of $5,287, which is $2,257 less than they would have received if they had filed as single people.
If you want to check your own situation, get your paperwork together and use this calculator to figure out if you and your partner stand to gain or lose financially from getting hitched.
Aligned Phase-Outs and Brackets
Except for individuals in the 35% and 37% brackets, the tax rate for married couples filing a joint return is now roughly double the rate for solo filers in the same income range.
With the brackets more evenly distributed, more married couples will be able to file jointly and benefit from lower tax rates.
Equally streamlined, the Tax Cuts and Jobs Act’s phaseout of the child tax credit now begins at $400,000 for couples rather than $200,000 for singles.
This amendment removed a potential marriage penalty for families with children, as the phaseout had previously been $75,000 for singles and $110,000 for couples.
Unless the law is renewed, however, these smaller amounts will take effect in 2025.
Should you marry someone just to take advantage of their tax breaks? Not likely at all. Successful business owners may be able to lower their tax liability by taking advantage of a write-off if they marry someone who does not itemize deductions.
Exorbitant medical costs could fall under this category as well. While not particularly passionate, this is a sensible approach to tax planning.
For married couples when one member does not work, the limit on regular and Roth IRA contributions is much greater.
Even if their own income is zero, a taxpayer’s nonworking spouse may make IRA contributions on their behalf. This means that a couple meeting these criteria can save thousands more for retirement (up to the limit of their respective plans) and reap large tax benefits as a result.
And if you are curious about the impact of marriage incentives (or lack thereof) on the likelihood that a couple will tie the knot, the answer is no. However, they may have an impact on the number of hours put in by each partner.
For tax purposes, alimony payments cannot be deducted.
With this discussion of divorce in mind, it is important to note that the TCJA eliminates the tax deduction for alimony paid after December 31, 2018.
Alimony payments are no longer required to be reported as ordinary income on a federal tax return by the alimony recipient, as of Dec. 31, 2018. Alimony is considered income in some jurisdictions.
Joint Finances and Shared Expenses
Another financial benefit of getting married is the ability to combine finances, which can lead to more efficient money management.
Combining incomes can provide a larger pool of resources, making it easier to tackle joint financial goals such as saving for a home, paying off debts, or investing for the future.
Moreover, shared expenses, such as rent or mortgage payments, utility bills, and groceries, can be divided between spouses, resulting in lower individual costs.
Health Insurance and Other Benefits
Marriage can also impact eligibility for certain government benefits and assistance programs. For instance, if one spouse has access to employer-sponsored health insurance, they can usually add their spouse to their plan.
This can be particularly beneficial if the other spouse does not have access to affordable healthcare coverage through their own employment. Additionally, being married may grant access to other benefits like retirement plans, social security benefits, and survivor benefits.
It is possible that the ability to compare health insurance plans is the single greatest financial upside of getting hitched. Both partners are eligible to enroll in whatever plan offers the best value for their situation.
Changes to insurance policies are usually permitted within the first 60 days of marriage.
When signing up for health insurance through an exchange, remember that both partners must enroll at the same time, even if they intend to select separate plans.
If both spouses were receiving subsidies under the Affordable Care Act (ACA) before they were married, the couple would be penalized since their combined income would be too high to qualify for subsidies.
Long-term care (LTC) insurance premiums are sometimes significantly less for married people. This is because spouses often take on the role of primary caregiver, allowing the insured to remain at home for as long as feasible.
All taxpayers who have insurance through the ACA Marketplace as of the start of 2022 are now qualified for this credit thanks to the American Rescue Plan of 2021. Filers who made more than four times the federal poverty level were previously disqualified.
Most insurance companies offer discounts to married people. Some insurance companies offer discounts to married people, either in the form of a lower premium or the ability to bundle policies together.
Bundling house and automobile insurance can save you money, and so can purchasing multiple policies for the same driver. Make sure to inquire about any possible married homeowner discounts once you have tied the knot.
Larger and More Beneficial Loans
Better off with two paychecks than one. If you are applying for a mortgage on a home costing $150,000 and you are a single adult, the bank will just look at your income. The combined income of a married couple increases their chances of being approved for a larger loan with more favorable terms.
It is important to keep in mind that money is not everything. Credit scores, overall debt, debt composition, and debt-to-income ratios are also taken into account by lenders. Therefore, it will be just as crucial to consider your spouse’s financial background as your own.
Neither you nor your spouse’s credit history will be erased or reset upon marriage due to the fact that credit scores are linked to Social Security numbers. The accumulation of marital debt and new accounts over time is reported in both partners’ credit reports.
When a couple opens an account together, both of their credit ratings will be considered. If one spouse has bad credit, it could affect their ability to open a joint account with a lender, leading to increased interest rates and costs for both spouses.
If one spouse has better credit than the other, the other’s score can benefit from the former’s timely payments and positive payment history.
The partner with the higher credit score can also open joint accounts for the couple’s usage, albeit this strategy might not be optimal for large purchases like a house when both salaries are needed.
The result is that a person with bad credit is more likely to adopt the good financial habits of their better-off spouse after getting married.
Many couples are able to better their financial situations by combining their resources and making better use of both earnings. Therefore, you might be able to keep your financial feet on the ground more easily as a pair, or at least be on the right track toward doing so.
What are the drawbacks of getting married?
Thanks to revisions to the tax code, the “marriage penalty” is now history.
When filing income taxes, some married couples may find that they owe more when filing jointly than when filing separately.
Nonetheless, additional tax-related reasons make marriage a financially advantageous choice despite this. Marriage amongst those who come from vastly different financial backgrounds is beneficial for both parties.
When the larger income is added to the smaller income of the other spouse, the larger earner may end up owing less in taxes. Meanwhile, if one spouse has a higher salary than the other, the lower-earning spouse may be eligible for a larger Social Security payout.
In addition to tax savings, there are also financial advantages: Some of the advantages of getting hitched include being eligible for higher mortgages, having more options for health care, and paying less for insurance.
The following are also drawbacks to consider.
Potential Increase in Expenses
While there are financial benefits to getting married, it’s essential to consider the potential increase in expenses. When you get married, you combine households and often take on additional costs.
This can include higher rent or mortgage payments, increased utility bills, and additional expenses associated with joint financial responsibilities. It’s crucial to carefully plan and budget for these potential increases to ensure financial stability and avoid unnecessary strain on your finances.
Legal and Financial Responsibilities
Marriage brings with it legal and financial responsibilities that both partners need to be aware of. For example, when you get married, you become legally responsible for your spouse’s debts.
This means that if your partner has outstanding debts, creditors may come after your joint assets to satisfy those debts. It’s essential to have open and honest conversations about your financial situations and work together to manage any existing debts responsibly.
Pre-nuptial Agreements and Protection of Assets
To protect your financial interests, some couples choose to enter into pre-nuptial agreements before getting married.
A pre-nuptial agreement outlines how assets, debts, and other financial matters will be divided in the event of a divorce or separation. While discussing a pre-nuptial agreement may not be the most romantic topic, it can provide peace of mind and protect both parties’ financial well-being.
What if you are marrying someone with bad credit?
Just to be clear, this will not affect you. No changes will be made to either of your credit reports after getting married. Likewise with your credit rating.
The full explanation is more involved. There are a number of additional ways in which your spouse’s credit can impact your own. You and your partner should have a common understanding of the following fundamentals.
One or more of the three major national credit agencies will compile information about you and use that information to assign you a score that reflects their opinion of your creditworthiness. Your borrowing habits and payment history for things like credit card bills are detailed in your credit report.
Even if you do not plan on borrowing money in the near future, it is still beneficial to have a high credit score.
Insurers use credit reports to determine premiums, landlords evaluate them before determining whether to rent to you, and potential employers look at them before deciding whether to hire you. It measures how dependable or dangerous you are likely to be in a variety of contexts.
Before applying for a credit card, you might not have much of a credit history, but if you do, it will gradually increase month by month. You can have quite a history by the time you tie the knot.
When a couple gets married, what happens to each person’s credit?
Your credit history and your spouse’s credit history will remain distinct even after you are married and share a Social Security number.
There is no such thing as a “couple’s credit report;” this does not change after a marriage. The credit reporting agencies do not even track marital status.
Name changes, such as one of you taking on the other’s surname or both of you hyphenating your names, will not have an impact on your credit score and neither of you need to notify the credit reporting agencies of the change.
However, if you apply for loans together, open joint accounts, or take on any other debt as a married couple, the married condition can affect your credit. The two of you should compare incomes, savings, assets, and debts as well as check credit reports before getting married and on a regular basis afterward.
As a married couple, you should have a mutual understanding of your respective financial histories and habits.
If you and your spouse are applying for a loan together, such as for a home or automobile, the lender would likely look at both of your credit reports before choosing whether or not to issue the loan.
You should consider getting a loan in your name only if your spouse has a poor credit history and you have enough money to cover the payments on your own.
If you don’t, lenders will not trust your good credit as much, and you will not be able to borrow as much money at as low of an interest rate. Two scores are worse than one in this situation because the lower score will bring the other score down as well.
If you are approved for a combined loan, the lender must report both of your names on the loan and your payment history.
For this reason, it is important to remember that any negative marks left on either of your credit reports as a result of a missed payment on a combined car loan will affect both of your financial futures.
What do you do to help a partner who has poor credit?
As a couple, you have the power to change your partner’s negative credit history into a positive one and raise their credit score.
You should not worry that their debts, bankruptcies, and liens will show up on your credit report. But until your spouse’s credit improves, you might want to avoid consolidating debt or opening joint accounts.
Together, you can take these three actions:
Take charge of the situation.
Your spouse needs to receive a copy of their credit report first, and they may do so for free by visiting tools online. That way, you and they can compare notes and gauge their progress (and you should probably acquire one, too).
Talk about the causes of the issue, such as a loss of employment, excessive expenditure, or a lack of contingency plans. Being honest and accepting of others is crucial.
Find a solution together.
Find a solution to the issues by deciding on a strategy. Create a spreadsheet detailing your outstanding collection accounts and their respective balances.
Would their credit ratings suffer if they made their payments late? Ensure that future payments to them are made on time.
Credit usage (one component of the credit score) can be lowered by keeping credit card balances below 30% of the available credit as soon as practicable. Also, if your spouse has unfavorable items on their credit report that just will not go away, they should go to a reputable credit repair service.
Monitor your development.
Obtain a credit report every few months to evaluate your progress and make adjustments as necessary.
Your spouse’s credit score will not forever be affected by negative material that appears there. It loses significance over time and vanishes entirely. The credit reporting agencies are obligated to delete this information after a set amount of time.
Marriage can be advantageous for one or both parties involved, depending on the specifics of each case. Sharing a mortgage or rent, as well as insurance, can help you save money on your monthly outlays, and it can give you a better chance of saving together for retirement.
By delving into the financial implications of marriage, you can navigate this important life milestone with clarity and confidence.
While there are financial benefits to getting married, such as tax advantages, shared expenses, and access to certain benefits, it’s crucial to also consider the potential drawbacks, including increased expenses and legal and financial responsibilities.
Ultimately, every individual’s financial situation is unique, and it’s important to have open and honest conversations with your partner about your goals, expectations, and concerns.
With careful planning and communication, you can ensure that your financial journey as a married couple is built on a solid foundation.
Remember, marriage is not just a romantic commitment; it’s also a financial partnership. By understanding the financial benefits and drawbacks of getting married, you can make informed decisions that will positively impact your future together.
More financial stability can be achieved after marriage and long-term cohabitation if both partners establish and maintain healthy financial routines.
Spend only what you can afford to, and cut back or stop using credit cards altogether. It is also a good idea to learn as much as you can about handling money as a pair, because it is trickier than you might imagine. Do not put off having a frank discussion about money habits, worries, and aspirations.