Is Marriage a Smart Financial Decision?
The idea of marriage is one that may have you feeling starry-eyed and the last thing you might want to think about at this time in your life are finances. However, getting married is a big financial decision and there’s a lot to think about as far as money and marriage.
The cost of some things like car insurance may go down if you get married, while the cost of other things can go up, such as healthcare and groceries. You have to decide whether you’ll share an account or keep your finances separate, and what about tax considerations?
The following are things to weigh as far as the financial decision that is marriage.
What Are the Financial Pros and Cons of Staying Single?
If you decide not to get married, it doesn’t necessarily mean you’re single. You may still have a partner, but you may both make the decision that marriage isn’t the right option for you.
If you do this, there are certain financial pros and cons.
One of the pros is the fact that you’re able to maintain full control over your credit and your finances. You don’t have to think about what another person is spending, or what you would do if you were to divorce.
Of course, there can be downsides of staying single, whether you’re in a long-term relationship or you’re entirely single.
One big one is that if you stay single and live alone, the cost-of-living can be difficult to manage on a single income. You’re paying the entire amount for basic necessities, and that can take a huge chunk out of your income.
There’s also the marriage penalty as far as taxes go, which will be detailed more below.
Growing Wealth in Marriage
If you’re planning for the future and retirement, marriage may work in your favor. A 2005 study at Ohio State University found that when people got married, they saw a significant increase in their wealth level.
After ten years of marriage, couples reported an average net worth of around $43,000 as opposed to $11,000 for people who stayed single.
The people who were worst off?
The people who got married and then divorced. Following a divorce, the average man was left with just $8,500 in assets, and the average divorced woman had just $3,400.
A good way to NOT start your financial future well as a couple is to take on a lot of debt to pay for your wedding.
The Knot found in 2013 that the average wedding in the U.S. costs almost $30,000.
Around 36% of couples say they used credit cards to finance their wedding, and 32% say they borrowed money to go over their wedding budget. If you’re getting married and starting with a heap of debt, it may not allow you to grow financially as a couple for many years.
Marriage and Taxes
When you file your federal income taxes, there are five filing statuses, including married filing jointly and married filing separately.
If you can legally file as married, then you have to and if you’re married you can’t file as head of household.
Beyond marriage, you can choose married filing separately and married filing jointly.
If there’s a big discrepancy in your earnings from your spouse’s this may be beneficial because it may put you in a lower tax bracket than you would be in alone.
If you file together, there may be more options for deductions and tax benefits than if you’re filing separately.
There was a so-called marriage penalty at one point that affected many couples. Under this scenario, a couple would pay more in federal taxes after they got married as compared to remaining single because in the past tax brackets weren’t designed to accommodate dual-earning companies.
Now, with tax adjustments from the Tax Cuts and Jobs Act, the marriage penalty affects only the couples who are the highest earners.
Your health insurance costs may go up if you get married, but you might also have more options. For example, you may be able to join your spouses’ health care plan, and this could mean you save more on premiums or have more choices as far as providers.
Finally, if you do want to buy a home, being married can be financially beneficial. It can allow you to get a lower interest rate on a mortgage and more buying power if both of you have income.
Whether or not marriage is a good financial decision depends quite a bit on the individuals, and as with anything, there are both pros and cons to think about.