Let’s Get Married (Except for Our Money)

Two gold bands sitting on cash

Please note the publish date of this blog. Financial information, market conditions, and other data mentioned in this post may no longer be accurate or relevant.

For the low, low price of about $50, my client can save nearly $30,000 per year in income taxes. Surely, this must be some dodgy tax scheme, right? Nope. All he has to do is marry his partner. As I wrote in We Married for the Money, couples can sometimes realize a huge combined tax savings, especially when one is working while the other is retired. But here’s the rub. They aren’t leaving their wealth to each other, and that’s where it gets complicated. 

We Are Not One

That $50, by the way, is the estimated cost for a marriage certificate where they live. For a refresher on some of the pros of staying unmarried, check out Unmarried Couples, Financial Win. For Doug and Patrick, marrying would greatly reduce Doug’s personal income tax bill because he will remain in a high tax bracket for as long as he continues to work in his current job. As a single worker, Doug is in the 35% federal tax bracket, but if they marry, they move to a combined 24% bracket. 

Patrick is an early retiree who’s not yet receiving social security or having to draw from his IRA, so he’s in the lowest federal tax bracket at the moment. He experiences some modest capital gains taxes each year, but the IRS doesn’t tax capital gains if you’re in the lowest two tax brackets. That, combined with his tax deductions, puts his tax bill at zero. So marrying produces no tax benefits to him, personally. However, given the large tax break that Doug will receive, Doug could easily share some of those benefits with Patrick. 

Other Heirs

As a married couple, how will they decide who pays what towards the tax bill if they are contributing disproportionately on the income side?  If they were both leaving all of their wealth to each other, they wouldn’t need to worry about this (assuming they didn’t divorce). The combined tax savings would just get invested and find its way back to the surviving partner when the other one dies. Except, as is common for late-in-life marriages, they are not leaving their wealth to each other. Doug (working) and Patrick (now retired) had already identified other heirs for their wealth when they met in their late 50s. And they both agreed to keep it that way. Doug has a few kids from a long-ago marriage, and Patrick will leave most of his wealth to his sister and a small chunk to a few charities.  

How to Share The Taxes

For now, the math is easy.  Doug can pay all of it since Patrick would have paid no tax anyway, and it ends up being a $30,000 reduction for Doug. But let’s fast forward to when Doug retires. Their respective nest eggs are made up assets with different tax characteristics. Doug’s portfolio is going to mostly be in an IRA (pre-tax money). Patrick has a significant amount of wealth in a brokerage, where withdrawals will only be partially taxed, and at a lower rate (capital gains).  Imagine they are each drawing from their respective portfolios.

As an example, if they were legally single, Doug would owe $6,000 and Patrick $1,000. As a married couple, the tax bill is $6,000, for a combined savings of $1,000. In this situation, they could agree to split the savings pro-rata. Doug would have owed about 90% of the total combined taxes if they were single, so they can do a 90/10 split on the $6,000. The only minor hassle is that, every year, they’ll need to use the marriage calculator to figure out that ratio. But hey, systems reduce the chances of money arguments, don’t they? 

Financial Impact of Premature Death

Most retirement plans show a couple’s long-term financial health by tossing all the variables into a blender and spitting out some type of probability-of-success result. But these plans often assume that if one person dies, the combined resources are still available to take care of the surviving partner. For example, if Doug died first, his personal spending would be removed, the house expenses would remain, and Patrick’s portfolio would continue on as a resource to help with the share of house expenses that Patrick is no longer able to pay. But in their case, Doug’s portfolio is no longer in the equation. 

Be sure that any long-term financial plans you create alone, or with the help of an advisor, accurately model how things look if one person dies prematurely and the surviving spouse doesn’t inherit their wealth. 

And Then There’s The House

Let’s assume that most couples live in a primary residence together, and that at one person’s death, the survivor will probably want to stay in the house (or at least have the option to). How should they own their residence? 

Again, if Doug and Patrick were leaving everything to each other, it wouldn’t be complicated. They would own it in joint tenancy. This is the one asset where I have a personal bias towards a couple owning the joint as joint tenants (survivor keeps it all). For this to work, each of them would have to be comfortable with a sliver of their estate not going to other heirs. My partner and I made this same agreement. We’re both leaving chunks of our trust and retirement assets to various family members, but the house is for us. There are two big advantages with this. First, the house doesn’t go through an estate process – it merely becomes 100% owned by the other person. Second, the survivor can decide if he wants to stay in the house or sell. 

Joint Ownership

Doug and Patrick plan to own the home 50/50, but remember that they want their respective wealth to go to other heirs. This means they’ll need to contact an estate attorney and arrange for either survivor to stay in the house until their death (often referred to as a life estate). For example, if Doug died first, his kids could be listed as the new owners, but Patrick could remain there for the rest of his days. There are pros, cons, fine print, and costs with this route, so it needs to be worth it, versus simply owning the house as joint tenants. 

In Closing

Any couple wanting to explore how marriage impacts their taxes can get an estimate using an online marriage calculator, or ask their accountant to run a formal projection. But let’s not forget there are countless other pros and cons that come with marrying (or not marrying). You should talk with an attorney or financial planner who can look at your circumstances. 

Unmarried couples still need to be extra vigilant with their estate planning (wills, trust, powers of attorney, medical directive, and more) because a non-spouse will be legally powerless to do a whole lot for you if you become incapacitated or are hospitalized.  And on that note, see you at your tax-friendly wedding! 

Happy planning, 



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