Can Couples Save Money By Not Getting Married?
June has long been the most popular month for weddings. As couples are planning to walk down the aisle, hopefully, they are also planning their finances as a married couple. Not being on the same page financially is a reason many marriages don’t work out, but what if the happy couple does talk about money and determine that the numbers just don’t make sense. It is interesting to look at whether some couples can save money by not getting married.
There was a good post at Retire By 40 recently about how it might be easier for single people to save money, but what about couples who don’t get married at all? We will assume that our theoretical couple cohabitates and is committed as if they were married. Are there money benefits for avoiding a wedding?
Marriage Tax Penalty
For many couples, especially those with similar incomes, marriage increases income taxes. When married couples who file taxes jointly pay more in tax than they would have had to pay individually, this is know as the marriage tax penalty. For example, two people who each make $80,000 a year and file taxes individually would be in the 25 percent tax bracket, but their combined income puts them into the 28 percent bracket.
For high wage earners, there are other taxes that kick in on investments and Medicare at certain income levels. For singles, $200,000 is the magic number, but for couples, the income limit for more taxes is $250,000. Also, personal exemptions start to phase out at $250,000 for individuals and $300,000 for joint filers. Although the government assumes you’re rich if you make more than $250,000, it doesn’t seem fair that two people can earn $199,999 each and not be subject to higher taxes, but if they get married, an extra $50,000 puts them into the elite tax category.
Lower income wage earners can also be penalized by marriage through loss of the earned income credit. A credit that was meant to encourage people to work actually might make some married people choose to work less if it means more in taxes.
While your tax bracket is certainly not your effective tax rate, many couples do end up paying more income taxes simply because they choose to get married.
Health Care Penalties
With the Affordable Care Act, couples can be penalized by losing their health insurance subsidy. In Colorado, an unmarried couple would qualify for a heath insurance premium tax credit if each of them made less than $46,680 or $93,360 combined. If they got married, they would have to file jointly to get a subsidy, and the income level would drop to $62,920.
Very low wage workers have it even worse. Individually, each person could make $16,105 or $32,210 combined and be eligible for Medicaid. If this couple got married, their joint income could only be $21,707 to stay on Medicaid. Even with a subsidy to purchase health care off the exchange, many low income families can’t afford the premiums and choose to go without.
Another type of penalty happens when an individual who qualifies for an insurance subsidy marries someone who has an employer sponsored group plan that allows family coverage. Regardless of income or whether or not the employer pays for family coverage, this person is no longer eligible for a subsidy and can see their health insurance costs go up hundreds of dollars per month.
The Bonus for Getting Married
All is not lost for married couples. Many people enjoy lesser taxes once they tie the knot. This is especially true for couples whose incomes are on the opposite ends of the spectrum. A high wage earner who marries someone with a low income might move to a lower tax bracket. The same can happen if one spouse decides to stay home with the kids or to start a business.
Married couples who stay married for a long time also benefit from increased Social Security benefits and tend to have a higher net worth than singles. Studies have also shown that married people tend to be healthier than singles, unless the marriage is rocky. The stress of a bad marriage can trigger many mental and physical health problems.
Should Couples Get Married or Not?
Personally, I am a firm believer in marriage. Part of it comes from being raised in the Bible Belt, but a bigger part stems from the commitment of making a vow to someone you want to spend the rest of your life with, even if it means paying more in taxes. That doesn’t mean I can’t see the benefit of staying unmarried for couples who are struggling with finances. Having a few thousand dollars less per year might mean going into debt or not being able to get ahead.
I guess the most important thing is to always talk about finances before and after making any sort of commitment. Make sure to choose your partner wisely. A good marriage can go a long way toward well being in general, but a bad marriage or going through a divorce is worse than any marriage tax or penalty the government can throw out.
Should couples avoid marriage to save money? Do you think married people have more money than couples who choose not to tie the knot?
I admit, I’ve considered the pros and cons financially of getting married, or not getting married. But, as Shannon pointed out, the legal implications are a bigger concern for me. There is a large age difference between Bryan and I, and he has adult children. It’s a very real concern of mine what will happen if something happens to Bryan. If he has a heart attack, and isn’t capable of making decisions on his own, are his kids going to push me out of the picture? I probably wouldn’t worry as much if we were closer to the same age, if he wasn’t a smoker, and if he didn’t constantly joke about how he’ll be dead tomorrow. Marriage provides a legal recognition to your relationship, and to your rights as a couple. That to me is more important than any financial savings.
You can have those rights unmarried by having things like a health directive and other legal documents in place.
I’ve wondered whether there might yet be a chance for a “protection of marriage” amendment – a Constitutional amendment which prohibits laws which in any way make marriage a financial disadvantage.
To me, being married is worth paying a little more. But to be fair, I’ve only ever received financial benefits from marriage. If money is that tight or just that important to you and marriage isn’t that big a deal… well, then do what you will.
What I find sad are when couples have to separate to stay financially afloat. My in-laws almost had to do that when my MIL hadn’t yet qualified for Medicare (you have to be on disability for two years) and my FIL was working a contract job. It nearly got them further into debt, so they were seriously considering a separation on paper.
Gotta love the healthcare system.
I think being married to the right person can have tremendous savings. Both Mr. Budgets and I were natural savers to begin with but when we got married and combined our financial lives it took us to a different level. Like Mrs. Frugalwoods said having the same financial goals is critical.
I’m with you–I think people should get married if they want to, but be transparent about their finances with each other. I think that marrying the right person can be a major aspect of one’s overall financial success in life–if you share the same financial goals and are able to work together towards achieving them, I think it’s a winning situation. There are certainly challenges to marriage, but I’m really glad I married Mr. FW!
Marrying the right person seems to make you more healthy and more rich, but marrying the wrong person does the opposite. I think the take home point is to choose wisely!
Another point to consider is the legal protection marriage offers when it comes to things like inheritance, making financial and/or health-related decisions if your partner is unable to do so themselves. Many people with common law marriages don’t have the same amount of protection as a married couples do and sometimes face significant opposition from other family members who may be able to circumvent what you and your common-law spouse intended.
That is an excellent point. I would hate to have a family member who didn’t really know me be able to make decisions over what my partner and I had discussed.
There are statistics that show that couples who stay with each other for the long haul actually have a higher probability to create and save more money. Having someone special to spend your life with is priceless, and I don’t think that saving money should be a factor in if you should or should not get married.
I would not get married or not get married to save money, but it is kind of interesting to look at the numbers.
I don’t think, if couples want to get married, they should avoid it because of saving money. If you want to stay single but together for other reasons than hey, totally cool. But I would never let that hold me back from tying the knot.
I would not either, and I never thought about it before getting married, but I do now several couples who have considered divorce because of health care costs. That just doesn’t seem right at all to me, not the getting divorced part, but how the rules are different for married couples as opposed to singles.