Somehow, in a world of eight billion people, you found the one. Whether you got to this point after years of swiping right or a few months of exchanging come-hither glances at the dog park, it probably took a fair amount of work.
Well, gear up for one important last step before you start two-stepping at the wedding reception. Invest time in acquainting yourself with the financial benefits of marriage, as well as the risks. From tax breaks to increased retirement savings to spousal death benefits, getting hitched and staying that way certainly has its rewards. Yet there is a flip side to that coin—the clash over cash with a spouse can lead to the downfall of a marriage.
Arguing about money, more than any other marital disagreement, is the strongest predictor of divorce, according to “Examining the Relationship Between Financial Issues and Divorce,” a Kansas State University study of 4,500 couples.
“It’s not children, sex, in-laws or anything else,” said Sonya Britt, the researcher who conducted the study. “It’s money—for both men and women.”
While marriage could be a boon to your bank account, it could also leave you in temporary or permanent financial straits. But getting to know your mate’s mindset towards money and their financial situation will play a crucial role in reaching your happily-ever-after goal. Addressing financial topics isn’t romantic, and some couples might find talking about them uncomfortable; it’s a must-do before saying I do.
Having these conversations now will build a stronger foundation for your marriage. Both of you need to provide an honest accounting of your overall finances and obligations. This isn’t the time to hold back information, even if it’s negative. And it might alleviate some of those pre-wedding jitters.
Consider marriage as a type of merger. It’s unwise to enter a business partnership without the necessary due diligence, and the same goes for wedlock.
Understanding the balance sheet of your betrothed wasn’t much of an issue in past decades when people were getting married earlier in life. Couples were hardly old enough to be financially established. For instance, in the 1960s, the bride’s average age was 20, while the groom was 23, according to the U.S. Census Bureau.
Today, folks are getting married for the first time later in life, which means they may have already acquired substantial assets or racked up significant debt. Last year, the average age for a first marriage was 33 for women and 35 for men, as reported by The Knot 2021 Real Weddings Study.
To get a clearer picture of money and marriage matters, we turned to Jacqueline Amrikhas, who has more than 30 years of experience as a certified public accountant in Sausalito. Amrikhas recommends that couples planning on tying the knot sit down together and discuss how each person approaches their finances.
“If you’re going to get married, you really need to find out about the potential spouse’s personal spending, saving habits, overall responsibility when it comes to filing tax returns and their credit score,” she said.
Asking questions is an essential part of the process to determine the financial compatibility of a couple, says Amirkhas. Does the person I’m going to marry have a budget, or do they live paycheck to paycheck? Do they spend more than they make? Before making a purchase, do they consider whether they can afford it or just buy it now and plunk down a credit card? How much credit card debt do they have?
“One person says ‘you’re spending too much’ and the other says ‘you’re not making enough,’”Amirkhas said. “This is very common.”
Different approaches to money are common, and you probably shouldn’t expect your partner’s spending behavior to change. You can blame your future in-laws.
“By the age of seven years, several basic concepts relating broadly to later ‘finance’ behaviours will typically have developed,” according to Habit Formation and Learning in Young Children, a University of Cambridge study.
Financial incompatibility leads to trouble. but there are ways for couples to work together on money management strategies—and ways to protect yourself if you can’t.
Amirkhas suggests that couples meet with a certified financial planner and a certified public accountant prior to the nuptials. Each person should consult separately with their own CPA to advise on their circumstances. Both partners should sit down together with the financial planner.
“It’s good to meet with a financial planner to see what you need to save every year for retirement and make a plan,” Amirkhas said. “Both of you want to get on board for that. If you each have an employer with a 401K program, anything you contribute is pretax.”
A financial planner can also advise on other long-term goals, such as the best way to pay down large amounts of existing debt or saving for a home.
A CPA can help determine whether it would be better for you to file taxes jointly with your spouse or file separately. The IRS offers tax incentives to married couples who file joint tax returns; however, there are cases where you might want to file separately.
When filing a joint return, both spouses are responsible for the taxes due, regardless of whether one spouse earned all the income or claimed improper deductions or credits, according to the IRS.
“If you’ve got a spouse who has a business and they’re not reporting all the income, you’re on the hook when you’re filing a joint return,” Amirkhas said. “The IRS says, ‘we can go after you.’ They treat it as if you both are liable. That’s an advantage of filing separately—the government can’t come to you to collect.”
Another important consideration is determining whether to combine your finances. Consolidating finances may simplify budgeting, bill paying, saving and investing. Yet if your partner has a great amount of debt or vastly different spending practices, you could opt to keep your accounts separate. In that case, each of you can contribute to a fund for shared expenses.
Sometimes a partner wants a prenuptial agreement, a written contract a couple signs before the marriage that specifies what will happen with assets and debts after a marriage ends. Sure, it’s not the cheeriest subject when you’re planning on growing old together. But a dissolution of the marriage is a possibility with the divorce rate in the United States at about 40%, according to the Centers for Disease Control and Prevention/National Health Center for Statistics.
A prenup is beneficial if you’re coming into a marriage with more assets than your partner and want to ensure that you keep them in the event of a divorce. Even if neither partner is wealthy, a prenup is a tool to pass assets to children from a previous relationship. You might need a prenup if you plan to delay or forgo your career to stay at home with children because it will provide you financial security in the event of a divorce.
Basically, you want to plan for until death do us part and just in case you fall short by a few years, have provisions in place to protect yourself financially.
Now, let’s move on to the good stuff—the financial benefits of marriage.
Reaping the Benefits
That old adage about two living as cheaply as one is true. And assuming you’re both working, your union upped your household income. You’re on your way to accumulating more wealth than when you were single.
Two cars. One insurance policy. Your premiums will go down with the multi-car discount most insurance companies offer. Get your homeowner’s insurance from the same insurance company and you should receive a discount for bundling the policies.
Each spouse should check their employer’s health insurance. It may be less expensive for both spouses to be on the same policy.
Bay Area home prices may have kept you from becoming a homeowner when you were single, but you have increased buying power now. You may qualify for a mortgage for that charming cottage in your favorite neighborhood.
When you sell that home, you get a huge tax advantage. Homes in the Bay Area have been increasing in value substantially. A married couple can exclude $500,000 in capital gains on the home’s appreciation, versus $250,000 for a single person.
On the other hand, if you don’t own a home yet, then you’re not paying property taxes and most likely won’t have itemized deductions, according to Amirkhas. Still, being married will lower your tax bill in most cases.
“Tax brackets are more advantageous when you’re a married couple filing jointly,” Amirkhas said. “If you’re single, the standard deduction is $12,550. But when you’re married, it goes up to $25,100. You basically get double the amount to reduce your taxable income.”
Take time to assess your financial situation at least once a year. When you have a major life change, such as a job promotion, going back to school or a baby on the way, new priorities come into play. Adjust your plan and get back to enjoying your wedded bliss.