Money and Marriage: How Getting Married Changes Your Finances
Money and Marriage: How Getting Married Changes Your Finances
It's not just the cost of the wedding, or the cards filled with cash and checks that pile up at the reception. The legal act of getting married, as opposed to just living together, can have some immediate impacts on your financial situation — for better or worse. Take a look at this rundown of financial considerations you'll be facing after the altar.
How marriage affects insurance
Calling insurance companies may not feel like the most romantic activity for a newlywed couple, but it could free up some cash to help pay off the honeymoon. Both homeowners and auto insurers may offer lower rates to married couples because statistics show they behave more cautiously and file fewer claims.
For auto insurance, the impact is greatest for very young people. A young 20-something could pay 20% to 26% less on car insurance premiums once he gets married. However, the difference is less as you age, so a 30-year-old might only get a 2% decrease in his rates after he says "I do." This favorable treatment is automatically applied whenever you get an auto insurance quote as a couple.
Home insurers might use marital status as a factor in determining your rate, or they might just offer a flat discount, for example 5% off, when you get married. It's worth it to call and ask for a better deal once you're hitched.
Long-term care insurance
Married couples also get big discounts on long-term care insurance, as much as 40%. That's because spouses are likely to care for each other at home whenever possible, while a single person might not have that option.
Your nuptials are also a good time to revisit your health insurance plans. Marriage is one of the qualifying life events that allow you to change your insurance plan or add your spouse. Most plans require you to make these changes within 60 days of your walk down the aisle. If you miss that deadline, you'll have to wait until the next open-enrollment period to make changes to your plan.
If either (or both) of your employers offers health insurance benefits to spouses, do a side-by-side comparison of your plans and consider three scenarios.
- You each keep your current plan.
- Your spouse joins your plan.
- You join your spouse's plan.
Some things to consider: How will your monthly premiums change? And what will happen to your deductible and possible out-of-pocket costs? Does your employer offer an incentive for declining coverage and joining your spouse's plan? Also, if you (or your spouse) have already met your deductible or paid significant out-of-pocket costs in your current plan year, you might not want to start a new plan with new limits, especially if you're anticipating additional health care expenditures.
If you don't have employer-sponsored health insurance, you can apply for coverage on your state or federal exchange, or you can change your current coverage in the 60 days after you get married. If you and your spouse will get coverage through an exchange, you must enroll together, although you can opt for different plans if you want.
Marriage changes how you qualify for health insurance subsidies under the Affordable Care Act. Once you're married, your combined income determines if you are eligible for help.
As a couple, you can earn a joint income of up to 400% of the federal poverty level , or $69,680, to qualify for premium subsidies. If you earn more than $69,680, you might qualify for an extended subsidy that limits your insurance cost to no more than 8.5% of your household income. The extended subsidy is in effect through 2025.
If you and your new spouse opt for a family plan, one seemingly minor detail could make a huge difference in your out-of-pocket costs if one of you were to require medical care. It relates to how the deductibles and out-of-pocket costs are applied; whether they are "embedded" or "aggregate," in insurance industry parlance.
Here's how that works: Family deductibles (and out-of-pocket costs) tend to be about twice as much as those for individuals. For example, say an individual deductible is $3,000 and a family deductible is $6,000.
In the "embedded" scenario, once any person in the family reaches the individual deductible limit ($3,000), the insurance company will start covering their costs. In the "aggregate" scenario, the sick person's bills can go as high as the family deductible ($6,000) before the insurer starts paying. It works the same way for out-of-pocket limits.
Embedded deductibles are more protective against large out-of-pocket costs if anyone on the family plan needs a lot of medical care during the year; however, these plans might have higher premiums.
It's not always obvious if the deductibles for a family plan are embedded or aggregate, even if you read a plan's Summary of Benefits and Coverage. You need to call the insurance company and ask. You can try these questions:
- Are the deductibles and out-of-pocket limits for the family plan embedded or aggregate?
- If one person in the family gets sick or pregnant, what deductible and out-of-pocket limits must they meet before the plan starts paying?
As of 2016, all insurance plans will have embedded deductibles in family plans.
How does getting married affect taxes?
When it's time for you to file your taxes, you must file as a married couple if you wed before Dec. 31 of the tax year. Most married couples should file jointly, with few exceptions, such as if your spouse refuses to file. Your filing status can have a huge impact on your tax liability, especially when it comes to big-ticket items like housing.
Despite what you may have heard about the marriage tax penalty, only certain couples get hit by it. For those without children, penalties occur at the very low or very high end of the income spectrum, when both spouses have earnings. They could end up paying 4% more in federal taxes compared to if they had remained single.
Childless couples who earn between $37,000 and $171,000 per year and take the standard deduction generally face no penalty. In fact, they may even get a marriage tax benefit as high as 6% or more, compared to if they had stayed single.
Tax penalties become more common for couples with children, except for those earning very little or those with a very uneven income split.
Marriage and retirement, IRAs and Social Security
Single people can contribute the maximum amount ($6,000 in 2021 or $7,000 if you are 50 or older) to a traditional or Roth IRA if they earn less than $124,000. A married couple can each contribute the maximum (for a total between $12,000 and $14,000, depending on their ages) if they earn less than $196,000 combined.
That could leave two high-earning singles worse off after marriage in terms of retirement savings. A low- or no-earning spouse is also better off than a low- or no-earning single person, because the spouse can contribute to a Roth IRA, or other type of spousal IRA, based on the marital income, while a single person could be out of luck, because their eligibility is based on their own income.
But married couples have more flexibility when it comes to some other types of retirement savings. If both have access to a 401(k) through employers, they can optimize their contributions based on any available employer match.
Married couples also access many different Social Security options. While single people only earn benefits based on their own incomes over their working years, spouses can claim some benefits based on their partner's earnings.
For example, a wife can get 50% of her husband's benefit, which makes sense if that is greater than her own. If a higher-earning spouse dies, the widow or widower can opt to get the Social Security benefit of the deceased, instead of their own.
There's one not-so-small Social Security consolation for those who remain single into retirement. They can earn much more before their Social Security benefits are taxed. For example, a married couple is subject to tax on their benefits once their income exceeds $32,000. Two single people could each earn $25,000 (or $50,000 combined) before they have to pay tax on their Social Security benefits.
As much as 85% of Social Security benefits are taxed for couples who earn more than $44,000 or for single people who earn more than $34,000. That means two cohabitating singles could earn up to $68,000 before paying a similar tax rate on their Social Security benefits.
How marriage impacts debt and liability
One more important financial thing that comes along when you tie the knot: liability. If your spouse declares bankruptcy, cheats on your joint tax return, hurts someone in a car accident or a bar fight, or loses a lawsuit, your joint assets could be at risk. And if he or she racks up certain kinds of debt, creditors might be able to come after you to pay it off.
But before you file for divorce or annulment based on the complicated information above, keep in mind that besides its personal and social benefits, marriage can offer other significant financial protections in the future, such as no federal tax obligations in the event of your spouse's death. And if you're married, you'll automatically inherit your spouse's assets, even if there's no legal will. You can count on your spouse's assets till death (or divorce) do you part.
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