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What You Need To Know About "The Marriage Penalty"

Karen Gibbs

marriage & moneyHi Karen, I keep hearing about the “marriage penalty”.  Are there financial pros and cons to getting married?
    On the Fence in Dundalk

Dear On the Fence, you’re not giving me much to go on, but with summer being the most popular season for weddings, I’ll assume you are in love and that this is your first marriage. 
Marriage between two high-income earners can result in “the marriage penalty” or a higher tax bill if joint income pushes you to a higher tax bracket than if you had filed as two singles.  But on the flip side, Uncle Sam rewards married couples who have children with personal exemptions and other deductions for dependents. 

Contrary to prevailing wisdom, most U.S. households are married with children.  Having a family can be an incentive to buy a home.  Owning a home allows you to claim the mortgage interest deduction and save more on capital gains taxes when you sell that home as a married couple than if you were single.

A married couple will also save on healthcare costs.  Most insurance policies cover spouses, so one healthcare policy means one premium.   Marriage has other health benefits; longer life spans, lower rates of heart disease, higher cancer survival rates, and fewer chronic health issues.

If you meet certain criteria, Uncle Sam will let you contribute to your spouse’s IRA and deduct as much as $11,000 on your joint tax return.  Married couples can maximize social security benefits, especially if one spouse earned substantially more than the other.

Spouses can give unlimited amounts of money to each other and not be subject to a gift tax over $12,000 as singles are.  And unless your spouse leaves an estate in excess of $5.25 million, you won’t be subject to estate taxes. Marriage also protects a spouse in the case of divorce.  Unmarried couples have no legal rights or recourse when breaking up unless they had a written partnership agreement.

Second marriages for those over 60 years of age have some specific issues. What impact will remarriage have if you’re receiving social security benefits of a deceased spouse?  Do you have heirs that are counting on/expecting an inheritance?  Will your intended’s income/assets complicate your Medicaid eligibility?

A study conducted by Kansas State University found that the number one reason for divorce is arguing over money, no matter how much the couple earns.  The study also found it takes a couple longer to recover from a fight about finances than any other fight.
Have you shared your bank statements, retirement account balances and credit reports with each other?  Before saying “I Do”, all couples should have the “financial talk” no matter what age. If financial worries have you “on the fence”, consider couples counseling with a trusted certified financial planner. 

Good luck!

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