Is Marriage A Smart Financial Decision? (Taxes, Insurance, Retirement)

Marriage diminishes estate tax among spouses, allows you to enjoy spousal benefits, inherit social security, and IRA. In addition, health, home, and car insurance come at a lower cost and with tax exemption. But marriage can also put you in a higher tax bracket and increase your monthly debt payments.

For better or worse, life together has a substantial impact on personal finance. So before you walk down the aisle with your soulmate, it’s good to learn how your financial status will change.

While the decision to marry or live in a domestic partnership is entirely individual, the tax rules apply to everyone. If you’re looking to get married soon, here’s what’s in store for you and your partner.

Since when is marriage a financial decision

For centuries, marriage was a method to stop wars and initiate a truce. A way to connect two high-class families. Marring outside your class was frowned upon for hundreds of years. So there was always a financial touch to marriage.

After years of evolution, marriage is no longer a must but a choice. Yet, no matter how advanced domestic partnerships have become, marriage is still a step further.

Bureaucracy and taxes are some of the main reasons people decide to marry. You’ve heard about a couple that got married to pay less tax. But how does it work, and is it really worth it?

Choosing a partner is a financial decision

When asked about his greatest financial decision, Warren Buffet once said that it was marring his wife. Not because she was so wealthy or gave him an abundant amount of money to invest. But because having someone with the same outlook on finance, major life decisions, and sharing his ambition made him who he is today.

Psychologists from Carnegie Mellon University conducted impressive research among married couples. Results showed that success and failure highly depend on your choice of partner. So marrying someone can make it or break it when it comes to finance and advancement.

How marriage can impact your finances

For a relatively long time, people believed that marriage brings only benefits when it comes to finances. So let’s see what can convince you to tie the knot.

1. You may pay less in taxes

If your spouse makes significantly less and files jointly, you can enjoy a marriage bonus and pay less in taxes. But it can also put you in a higher tax bracket. What happens when you both earn a good salary? Let’s take $70,000, for example.

A single person in 2021 earning from $40,526 to $86,375 has to pay $4,664 plus 22% of the amount over $40,525.

For our example, that’s $11,148.5.

Let’s say they marry someone in the same bracket, and together they make $140,000. A couple filing jointly that made from $81,051 to $172,750 has to pay $9,328 plus 22% of the amount over $81,050.

In our case, that’s $22,297.

Getting back to the single filer, $11,148.5 times two is $22,297. Is this couple paying less when filling together? No, it’s the same.

Simply put, there’s no difference in single and couple filling when spouses make the same. But if they marry someone who makes less, they can enjoy a marriage bonus of up to 21%.

2. Married couples don’t pay estate tax

A young married woman is on her laptop preparing her yearly tax return

Spouses can transfer any property to each other without paying a dime. The unlimited marital deduction allows a spouse to leave their property and assets to the surviving spouse. This means a wife can transfer all her property to the husband and pay no federal estate tax on the first transfer.

Couples can leave as much as $24.12 million to their heirs without gift or estate tax.

3. Easier to save for retirement

Married couples tend to have it easier when it comes to retirement savings. Did you know that a partner that earns more can contribute to the lower-earning spouse’s Roth IRA?

Social security is another good side. For example, a spouse can get a 50% spousal benefit. So if the husband receives $1,200 as a full benefit, the wife earns $600, or their household has $1,800 in social security pension.

If the husband passes, the wife inherits his full benefits and gets $1,200 a month.

4. You get better health, homeownership and car insurance

Adding your spouse to your health insurance plan is exempt from taxes. As a result, any healthcare-related cost made for your spouse doesn’t get taxed. Depending on your needs, you can choose family policies that come with lower or higher deductibles.

While some states like California have the tax exemption for registered domestic partners, too, it’s not as common.

Adding your spouse to your car insurance or sharing the policy can bring down the premium, especially if one of you is not a great driver. Homeowners insurance has more favorable rates for married couples.

5. Lower capital gain tax

Are you a homeowner? If you decide to sell a house where you and your husband lived for over 2 in the last 5 years, you can enjoy a double capital gain tax exemption.

As a single person, once you sell your house, you don’t pay tax on the first $250,000. But as a married couple, you don’t pay capital gain tax on the first $500,000.

6. Married couples enjoy more favorable loans

When couples apply for a mortgage or any other loan, both their incomes are considered together. So if both spouses have a good credit score, high income, and low debt, they’ll get much better rates as a married couple instead of singles.

Financial disadvantages of marriage

In marriage, as in life, it’s not always rainbows and butterflies. Some aspects of personal finance work better for single people, like debt repayment.

1. Wedding expenses

Marriage doesn’t need to come with a huge celebration, but it often does. If one of the partners wants a lavish ceremony, it can hit your finances like a wrecking ball.

Let’s take an example from the pre-covid era. In 2019 when weddings were still standard, the average cost of a wedding in the US was $33,900. The prices of location, gowns, reception, everything comes down to a house downpayment!

2. Poor credit is contagious

Marriage doesn’t affect your credit score directly. But married couples tend to have joint accounts or file for loans and mortgages together.

So if one of the spouses has made bad financial decisions and has a low credit score, it will affect them both. This can lead to higher fees, loan denials, etc.

3. When ‘something borrowed’ has a different meaning

Debt payment rates, especially student loans, can come with an income-driven repayment plan.

This plan comes in handy when you’re not making as much single. But once you get married and your spouse makes more, your debt repayment rates can jump up! Unfortunately, many aren’t aware of this problem, which catches them unprepared.

Prenuptial agreement: romance killer or smart decision

A prenuptial agreement is a contract drafted and signed before marriage by both parties. They get a bad reputation as people often understand them as a method to punish one another in the case of separation.

The prenup includes a list of all partners’ property and assets and how they would divide them in case of separation. It’s usually, but not always done when one partner has much more assets or children from previous marriages. It can include a guide on dividing wealth and real estate acquired during the marriage.

While different states have different rules for prenup agreements, fairness is universal for all of them. However, beware that even in the case of divorce, one of the partners can ask to invalidate the prenup. Then, the judge has to decide if the prenup agreement is fair, which is a lengthy and costly process.


Is it better to get married for tax purposes?

Depending on the individual situation, you might pay 21% less in taxes or 12% more. The decrease is called a marriage bonus, while the increase is a marriage penalty.

Here’s a simple calculator to get a general idea of how much your taxes would change.

What should I consider financially when getting married?

Before tying the knot, discuss personal finance, debt, budgeting, long-term financial goals, investments, and homeownership.

Set up a game plan that will guide you through the starting period. After your honeymoon, it’s time to tackle big tasks and make essential decisions.

Can you get married without money?

The cheapest way to get married is a civil ceremony. Call your courthouse to check the fees for the marriage license and the ceremony.

They range between $25 and $100, depending on the state. A predominantly DIY backyard wedding with a friend as an officiant is also a good, budget-friendly option.

Bottom line

Money makes the world go round, but we’re nothing without support, love, and care. Once you find that special one, it’s okay to discuss finances, financial fears, and goals. Keeping quiet about finances is never a good idea.

Marriage brings some financial burden, but it also brings you the opportunity to grow and prosper together. When choosing your partner for life, make sure it’s someone who has a healthy outlook on money and is willing to grow with you.

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