When gay marriage became legal, I remember asking two of my favorite clients (who were in a long-term domestic partnership) when they were going to tie the knot. Their reply: “We haven’t decided if we’re getting married. Will it help us or hurt us financially?” They wanted the right to marry. Actual marriage? Not so much. Wait, what about Justice Kennedy’s quote about there being “no union more profound than marriage?”
For my clients, and apparently thousands of other American couples, it was always about equality – not a deep desire to have formal recognition of their love and commitment to each other…unless of course there is a significant financial benefit. If you’re in a dual-income (unmarried) relationship, foregoing marriage, or at least postponing it while you’re in your wealth accumulation years, may save you thousands of dollars.
Wealth Accumulation Years
If you and your partner are both earning six-figure salaries, or if you’re both working and one of you is the clear breadwinner (for example, $400,000 and $80,000), the odds are good that you’ll be staring down a significant marriage penalty. What this means is that you’d pay more income taxes as a married couple than you would as two individuals. There are also some other taxes that may get tacked on that would otherwise be avoided in a single-filer situation.
Purely from a taxes standpoint, getting married can add thousands of dollars of extra taxes each year. The only way to know for sure is to ask your CPA to run a projection to see how much your total tax bill would change if you tied the knot. You can also play with this marriage penalty/bonus calculator.
Spending Years
One possible way to have your cake and eat it too is to stay legally single during your high-earnings years (if that will greatly reduce your income tax bills) and then consider marrying once you enter your 60s. At that point, you’ll probably experience a drop in your household income (and tax bracket) as you slow down with work or shift to something that’s less income-driven. You’ll want to revisit marriage at that time for three compelling reasons (though there may be more):
1. Taxes
Review your income tax situation again once one partner is expected to experience a large income reduction from going to part-time or retiring. If that happens, you may be entitled to a “marriage bonus” (i.e a smaller tax bill as a result of filing a joint tax return).
2. Social Security
When you’re nearing the age at which you can collect social security retirement benefit (age 66/67) you should get clarity about the impact that marriage might have on your total combined benefits. Married couples generally have options specific to them that may result in a larger lifetime benefit amount.
3. Estate and Gift Taxes
The vast majority of us don’t need to worry about estate taxes while we’re young. But as we get older, we’ll have a better sense of whether or not we’ll be subject to estate taxes at the death of the first partner. Based on the current laws, a person needs to have a net worth of more than $5.45 million that is being left to a non-spouse before an estate tax applies. You will want to take a hard look at what additional taxes might be owed if there is a separation or death while you’re unmarried.
Caveats to Staying Unmarried
If you opt to stay legally single in your wealth accumulation years, take it one year at a time, as circumstances may change in the near future (tax rates, your income or net worth, feelings about marriage, etc.).
In the meantime, it’s crucial that you do some basic but thorough planning so you don’t hit a landmine that could wreak havoc in your life. There are still many rules and protections in place strictly for married couples. So it’s even more important that you have properly titled your accounts, named the right beneficiaries, and created an estate plan with an attorney. But if you’re saving, say, $10,000 in taxes annually for 20-30 years by staying legally single, you can carve out a piece of that surplus for a good professional team (estate attorney, CPA, and of course, a CFP).
So, sorry Beyoncé. If you like it, then you should know the financial impact of putting a ring on it.
Happy planning,
Barrett
Disclosure: Please contact your CPA or tax professional to determine which is the best option for you.
