Does Marriage Bring Financial Benefits?

Dear Carrie,

My partner and I have two children. We aren't married but are considering it. What are the financial benefits of marriage?

—A Reader

Dear Reader,

When it comes to money, marriage does change things. From owning property to retirement planning to estate planning to filing taxes, the rules are different—and largely more favorable.

But like so much in personal finance, you have to understand the rules to get the maximum benefit. In some cases a couple may get hit with a higher income tax bill (the infamous ‘marriage penalty’), but from a personal finance perspective, the positives of marriage typically far outweigh the negatives. Here’s a quick overview.

Your Social Security benefits may get a boost

One of the most significant advantages of marriage is eligibility for Social Security spousal and survival benefits. First, as a married couple, you're each eligible to collect your own Social Security benefit or up to 50 percent of your spouse’s benefit, whichever is greater. This can be a financial plus if one of you is a higher earner. In addition, a widow or widower is eligible to collect up to 100 percent of the other’s benefit. Plus, Social Security can provide important benefits for a minor child whose parent is deceased or disabled.

You could get an income tax break—or not

As you might expect, when it comes to income taxes, marriage has pluses and minuses. While you'll be able to choose between filing a joint or separate income tax return, this doesn’t mean that your combined tax bill will go down. In fact, filing jointly could bump you into a higher tax bracket—especially if you both earn a substantial and similar amount of money. On the other hand, one-earner families may fall into a lower tax bracket.

And while the standard deduction is higher for a couple, combining your income could impact some of your deductions if you itemize. Filing separately, however, can lower or eliminate certain credits like the child tax and earned income credits and may cut deductions for IRA contributions. As you can see, it's a bit of a balancing act, so probably wise to talk to your tax advisor to see which is best.

Here are a few definite pluses:

• When an unmarried person includes a partner on their health insurance plan, that benefit is taxable. For married couples, premiums to cover both are tax deductible.
• A non-working spouse can contribute to a Spousal IRA as long as the working spouse has enough earned income to cover the contribution. These contributions will have the opportunity to grow tax deferred, and may also be a deduction.
• Beginning in 2020, if you inherit an IRA from your spouse, you can basically treat it as your own and postpone taking required minimum distributions until the year you turn 72, potentially giving your assets more time to grow tax-deferred.

Buying or selling a home

You don't say whether or not you and your partner already own a home together, but either way there are financial considerations. Your specific relationship status doesn’t determine whether you can get a mortgage. Specifically, you don’t have to be married as a couple to apply for a mortgage. The lender will, however, consider the financial status—credit score, income, assets, liabilities—of both of the applicants regardless of marital status. On the other end, when selling, a married couple with joint ownership gets a capital gains exclusion of up to $500,000; a single person can only exclude $250,000.

There are big risks if both your names are not on the title of any property you own together. The unnamed partner is vulnerable in case of splitting up, divorce or death. Deciding how you will own a home has significant and lasting consequences. For estate planning purposes, you may also want to discuss with an attorney whether setting up a trust makes sense for your situation.

Gift and estate tax provisions are more generous

The IRS seems to smile on marriage when it comes to gift and estate taxes. Married couples can transfer an unlimited amount of property to each other free of any reporting or gift tax. They can also use “gift splitting” to essentially double the amount they can jointly give to a third party.

Plus, a married person can generally leave an unlimited amount of money to their spouse without paying any estate tax. In addition, the surviving spouse can use any unused portion of the deceased spouse’s lifetime estate tax exclusion upon his or her death. Under current law (2020), this means that a married couple can pass on up to $23.16 million free of federal estate tax.

Insurance planning

Depending on your current insurance policies, being married could result in anything from small savings on premiums to greater choices in coverage. Here are a few to be aware of:

• Health—If you have separate policies, either through your employers or independently, getting a family policy from a single provider may be a much better deal.
• Auto and Home—As a married couple, you can typically bundle homeowners, car and umbrella policies, potentially bringing premiums down. Not every automobile insurance company allows domestic partners to share a policy. Shop around and check with your insurer.
• Long-Term Care—Married couples or those with a committed partner may be able to save on premiums with ‘couples discounts’ even if only one party is approved. The savings are greater if both members purchase policies. 

A spouse may qualify for more benefits

A spouse may also be eligible for a variety of employee, veterans and federal government benefits. For example, when it comes to military and veteran benefits, a military spouse may be eligible for healthcare and family separation pay. In addition, spouses of deceased veterans may be entitled to benefits such as healthcare, educational assistance, home loan guarantees and pensions.

There's also a broad array of benefits for spouses of federal government employees, including health, retirement and survivor benefits. Couples who are in a civil union or other forms of domestic partnership other than marriage are ineligible for most benefits.

The real value is in your hands

While money should never be the reason to marry, it can be a financial plus. Just make sure you and your partner understand and agree on how you'll share responsibilities, combine finances and pass your money values on to your children. That's most important—whether or not you decide to marry.

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.

Please note: This article may contain outdated information about RMDs and retirement accounts due to the SECURE Act 2.0, a law governing retirement savings (e.g., the age at which individuals must begin taking required minimum distributions (RMDs) from their retirement account will change from 72 to 73 beginning January 1, 2023). For more information about the SECURE Act 2.0, please read this article or speak with your financial consultant. (1222-2NLK)