Helping clients understand the financial benefits of marriage

10/26/2023 — Key takeaways:

• Marriage can offer significant financial benefits such as pooled resources for retirement, access to spousal Social Security benefits, insurance coverage and discounts, and potential tax advantages.
• Financial planning for couples before marriage is crucial to avoid future conflict and align shared goals.

Marriage is more than just a legal bond between two people in love—it’s also one of the most significant financial commitments a person can make. Merging two individuals’ incomes, assets, and liabilities into one shared financial picture can be both exciting and overwhelming, which is why having a solid financial plan in place is crucial. From careful financial planning before the big day to maximizing tax and other benefits, we’ll explore how marriage can impact your clients’ financial futures.

Financial planning before marriage

Before your client says “I do,” you can encourage them to have an honest conversation about their financial history, present financial situation, and any future plans or aspirations with their partner. Planning for the costs of raising children, where to retire, and everything in between should be on the table for couples planning to wed. Helping your clients create a joint financial plan to build financial security can be a proactive step to avoiding conflict down the road.

These types of conversations might not be the easiest to have, however. A 2022 OnePoll survey on behalf of Questis, which found that over half of people (56%) still think talking about money is taboo¹. Knowing this, you should approach the subject with care, since discussing money with a potential spouse could feel burdensome or anxiety-inducing for your clients.

Financial benefits of marriage

Insurance

One benefit of marriage is the potential for reduced insurance costs. If both spouses work and are eligible for health insurance plans, once married they can decide which plan works best for them. Moreover, spouses typically have rights to family benefits on many insurance policies, including life, auto, and home insurance, often resulting in lower premiums. In the unfortunate event of a spouse’s death, the surviving partner may be eligible for survivor benefits through Social Security, pensions, and other programs. These benefits can provide significant financial support in difficult times.

Taxes

Marriage can also bring about significant tax advantages for some couples. They can choose to file jointly, which often results in lower tax rates and access to various tax credits and deductions. Additionally, married couples have higher income thresholds before they reach higher tax brackets. Generally, filing taxes jointly can result in greater benefits for your clients than if they filed as a single person, but this will depend on their specific situation.

For example, when selling a home as a single person, there’s a home sale exclusion of up to $250,000 available in 2023.² For a couple, it goes up to $500,000. So, selling a home with a big gain, such as $350,000, can mean that a couple pays no tax on the gain, while a single person would be taxed on $100,000 of the gain.

Your client’s financial situations are unique, and while many couples experience "marriage bonus," some may find themselves in a "marriage penalty" situation, where their combined income pushes them into a higher tax bracket. It’s always recommended to consult with a tax professional to make the most informed decisions on how to file once married.

Retirement

Another financial benefit of marriage is the ability to pool resources for retirement income. For example, spouses may be eligible to contribute to spousal IRAs, even if one partner doesn’t have earned income.³ This allows both individuals to boost their retirement savings and enjoy the benefits of compounding interest over time. And if both partners are earning, they can contribute to individual retirement accounts, effectively doubling the amount of money being set aside for their golden years.

Spouses can also inherit each other’s Individual Retirement Accounts (IRAs) without any tax implications, facilitating the seamless transfer of wealth if one spouse passes away. In addition, in the case of employer-sponsored retirement plans like 401(k)s, a non-working spouse can gain access to these benefits. This is advantageous for couples where one partner stays at home or works part-time, as it broadens their retirement savings avenues.⁴

Social Security

When it comes to Social Security, a couple generally has more options and strategies to maximize their benefits compared to an individual. These benefits can play a crucial role in your clients’ retirement planning. Spouses can claim benefits based on their partner’s work record, which can be advantageous if one partner has earned substantially more over their career.

Let’s consider the spousal benefit. This allows a lower-earning spouse to receive up to 50% of the higher-earning spouse’s benefit. This is particularly beneficial when there is a considerable disparity in the couples’ earnings or if one spouse did not work outside the home. Additionally, if one spouse passes away, the surviving spouse can opt to receive the deceased spouse’s Social Security payouts if they are higher than their own. This ensures a continued source of income and can help alleviate financial stress during a difficult time.⁵

The rules for divorcees are also potentially beneficial. If your client was married for at least 10 years and is currently unmarried, they could be eligible for benefits based on their ex-spouse’s record.⁶ Understanding the rules and strategies around Social Security claiming can help maximize benefits for both partners during retirement.

Loans

Married couples often find it easier to qualify for loans and access better interest rates. Lenders may consider the combined income and creditworthiness of both partners when evaluating loan applications—although this isn’t always beneficial if one partner has significant debt or bad credit. If both partners are good candidates for a loan, it can make financing major life expenses like a home or a car more affordable because resources are pooled.

Marriage can also affect how couples pay off their student loans. If one or both in the couple have student debt, deciding whether to file jointly or separately on their tax returns could affect their payment plans or monthly payment amount, since some ways of paying are based on income.⁷

Conclusion

One of the obvious benefits of marriage is being able to share financial responsibilities and pool resources with a partner. Simply splitting day-to-day costs can potentially save individuals thousands of dollars in rent or mortgage payments, groceries, and other costs of living. In the end, marriage is a partnership. And like any successful partnership, it requires communication and planning. By addressing the financial benefits of marriage with your clients, you can help ensure that they’re not just emotionally ready, but also financially prepared for a lifelong commitment.