When you think of planning to get married, your first thought is probably about the romantic aspects of marriage. You'll spend a lot of time planning your wedding, deciding who to invite, what to wear, where to have the ceremony and reception, and where you'll race off for your honeymoon. You'll register for wedding presents and dream about what life will be like after the big event. Even those of you who consider financial matters may focus on the immediate needs of you and your spouse. Coming up with a joint strategy for paying bills, investing money, and using free cash can be a challenge for any couple. Often, a prenuptial agreement is the furthest thing from the minds of two people in love. For many couples, especially those who are just starting out and don't have many assets, not having a prenuptial agreement isn't a glaring omission.
However, it's important for newly married couples to understand what effects getting married has on their financial and estate planning. In particular, marriage brings with it certain financial and legal rights that every couple should take into account when thinking about how to create a solid plan for their future. Marriage will have an impact on your finances, and only by knowing its full extent can you plan correctly for every contingency.
Benefits galore
Probably the most tangible effect that getting married has on your finances is to make a wide range of benefits available to both spouses. For instance, most employer health plans allow employees to obtain health insurance coverage both for themselves and their spouses and children. Although some insurance companies, including Hartford (NYSE: HIG), Aetna (NYSE: AET), and Metlife (NYSE: MET), offer group coverage that recognizes domestic partnerships, being married makes it much simpler to get these benefits. For couples in which one spouse is self-employed or chooses not to work, the high cost of obtaining individual health insurance outside of an employer plan can make eligibility for an employer insurance plan extremely valuable. Similarly, other employee benefits -- such as group life insurance, flexible medical reimbursement plans, and child care expense plans -- are often open to spouses but not to unmarried couples.
In addition to employer benefits, many government benefits are only available to couples who are married. Social Security, for example, provides each spouse with the option of either taking a retirement benefit amount based on that spouse's earnings history or an amount based on the other spouse's earnings. So if only one spouse chooses to work during the majority of a couple's joint careers, marriage can mean the difference between both spouses getting substantial benefits versus only one spouse receiving Social Security payments. Furthermore, Social Security also extends survivor's benefits to a surviving spouse, which can provide much-needed resources in the event that one spouse dies prematurely.
Taxes and the marriage penalty
When it comes to income taxes, the picture is a bit murkier. Historically, the way that the tax brackets were set up for single people and for married couples created a higher tax bill for many working couples after they got married than they had to pay while they were single. This phenomenon, known as the marriage penalty, established a financial incentive for couples not to marry.
Recent changes in the tax laws have eliminated the marriage penalty for many couples. Standard deduction amounts for joint married filers were increased to be exactly double the amounts for single filers, and the dollar amounts for the two lowest tax brackets were changed to extend lower tax rates to married couples for more of their income. However, for couples whose taxable income exceeds $125,000, you may still find that you're worse off under the filing rules for married couples than you were as single taxpayers.
On the other hand, couples in which only one spouse works get a substantial marriage bonus. Because the larger standard deductions and wider tax brackets for married couples result in much lower taxes, a one-worker couple pays much less tax than the same worker would pay as a single taxpayer. In effect, getting married allows the working spouse to use some of the tax benefits available to the non-working spouse that would otherwise go unused. Unmarried couples, however, can't share their tax benefits in the same way, so the working member of the couple can land in a much higher tax bracket as a result.
As you've seen, there are some significant financial benefits to getting married. On the other hand, marriage also has a major impact on legal rights and other issues related to estate planning. You need to be aware of some of the automatic changes to your financial planning that result from marriage. To make sure that your plans still work the way you and your spouse want, a close review of your legal documents in the context of your post-marriage life is a prudent thing to do. The second part of this article discusses these issues in greater detail.
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Fool contributor Dan Caplinger loves his wife for putting up with his financial nitpicking. He doesn't own shares of the companies mentioned in this article. The Fool's disclosure policy is a great relationship builder.
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