Wealth Matters: Financial pros, cons of marriage

Heather Cleland, CFP, CDFA, is a partner with Willow Creek Wealth Management of Sebastopol.

WEALTH MATTERS ,

Marriage is one of the most important life decisions anyone can make. The U.S. Supreme Court decision to legalize gay marriage nationwide has reminded everyone that they should also consider the financial advantages and disadvantages of the marital state.

In general, the legal and financial perks of marriage tend to outweigh the risks, costs, and hassles. The purpose of this article is to serve as a reminder that marriage is a complicated decision with far-reaching ramifications (financial as well as emotional) for all couples considering taking the plunge!

Pro: Property ownership

Married couples generally share property ownership. When unmarried couples own property together, however, they must be concerned about issues that married people can take for granted. If one partner dies without a legal will, for example, or without life insurance to pay estate taxes, the remaining partner can easily lose the home.

Pro: Retirement benefits

Married couples can share each other’s retirement and Social Security benefits. If one spouse dies, pension payments or Social Security survivor benefits can automatically transfer to the surviving spouse. When married, a spouse also has the opportunity to roll over individual retirement accounts (IRA)’s or 401(k)’s into their own accounts after the death of a spouse.

Con: Government benefits

Getting married often increases household income, which may make you ineligible for certain kinds of help—financial aid for college, for example, or programs designed to make it easier to pay back student debt.

Pro and con: Income taxes

Getting married can reduce a couple’s income tax burden if one spouse earns significantly more than the other. For example, if an executive and a stay-at-home parent marry, they’ll usually save money on taxes. Couples can face a higher tax bill, however, if both spouses earn about the same. The marriage penalty can be especially high—in some cases, tens of thousands of dollars a year—if both are well-paid professionals with six-figure salaries.

Pro: Estate and gift taxes

Married couples can seamlessly share money, possessions, and property between them. If one dies, the other can inherit everything and pay no taxes. For unmarried couples, it’s not so easy. If you give more than $14,000 to your partner in a year, you may need to file a gift tax return.

Mostly pro: Parenthood

Legal marriage can simplify many issues faced by parents. For example, a parent often had to legally adopt a child born to their partner, and that may not be necessary any longer. There is one exception - same-sex couples considering overseas adoption. In some countries where Americans adopt, officials sometimes discriminate against gay couples and may be more open to adoption by a single person.

Pro: Immigration

U.S. citizens and permanent residents can get their legally married spouses green cards, allowing them to live and work here.

Pro and con: Divorce

Divorce can be expensive, and a person can lose prized possessions or be burdened by paying alimony for years.A good prenuptial agreement can lower the risk of an expensive divorce in the first place.

Con: Financial fights

When you get married, you are responsible for your spouse’s debts and (potentially) bad credit history. This can be especially problematical if money styles conflict.

Pro: Health care

Usually, workers can cover their spouses through their employers’ health insurance. Married couples automatically have the right to visit their spouse in the hospital and make medical decisions. If your spouse is sick, you have the right to take time off from work through the Family and Medical Leave Act.

For most people, the most important financial aspects of marriage come into play when a spouse is sick or dies. How do you weigh the cost of higher income taxes each year—a possibility for many two-income couples if they get married — against the right of a widow to stay in their home or decide where their spouse is buried? There are so very many reasons, financial and otherwise, why the choice to marry is one of the biggest choices a person will ever make.

Heather Cleland, CFP, CDFA, is a partner with Willow Creek Wealth Management, Inc. (willowcreekwealth.com, 707-829-1146), Sebastopol, one of the leading wealth management firms in California. Wealth Matters is a monthly column from the firm’s advisors.