3 Money Things That Change When You Get Legally Married

tldr – Upon marriage, you are now viewed as a team in the eyes of the law. This changes how you may file your taxes, evolves how the government views what is “yours” vs. “ours”, and increases your eligibility for financial products.

Whether you get married at the courthouse or your officiant signs off on your marriage certificate, you’re now married in the eyes of the law. Once that happens, there are three important changes that impact your money separately and together.

We now join you in holy tax-imony 

Once you’re married, the IRS views you as a unit. They have a different set of tax rules in place to try to reduce opportunities to ‘game’ the tax system by filing separately and using certain deductions or credits. The good thing is that the IRS has tried to reduce the tax differences for filing separately vs. filing jointly for most couples now.

Once you’re married, you’ll have the ability to file jointly or separately. When filing jointly, the tax brackets and tax rates are different from the tax brackets when filing individually. For partners with similar income levels, this coud result in a higher income tax bracket. For partners with different income levels, this could result in a higher tax bracket for the lower earner. 

There may even be tax benefits like higher tax deductions for married couples or a higher amount of tax-free allowance for selling a home.

The best way to see what you may be eligible for, is to use a tool like Turbotax that allows you to easily see what your tax refund / payment may be if you file separately or individually. 

What’s yours is mine, and what’s mine is yours.

Where you get married will determine what is considered “yours” vs. “ours” once you get married. And for many couples, that’s a common surprise. It’s not the same everywhere in the country. 

There are two common ways property is viewed:

• Common law: ownership depends on whose name is on the property
• Common property: ownership is viewed as equally owned between spouses, if acquired during the marriage

Most states use common law property rules; that means the property belongs to whoever’s name it’s under and that individual can choose who inherits the property if anything happens. If you have a joint account with you spouse, your spouse automatically inherits the property. If it’s not joint, then you need to choose who should inherit it. 

In community property states, there’s a focus on what happens during the marriage. If you earn income, buy a house, invest, or take on debt, state law views these as actions you take jointly together. Anything you owned or debt you had before marriage, continue to be viewed as yours individually. During the marriage, if one spouse receives gifts of inheritances, those are also considered individually owned.

Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

The world of prenups

For today’s couples, prenups are becoming increasingly popular as couples move or come from different states and don’t want to leave the rules up to whatever state they choose to legally get married in. Some prenups may be for couples who live in a common law property state, and they may prefer community property treatment. For other couples, it could be used to add some additional terms: like if one couple’s parents is helping out with their down payment, there can be stipulations added that the down payment money goes back to the parents / to their child in the event of a divorce. 

Prenups used to be considered a legal agreement to protect one person who had a lot more money than the other person. They’re increasingly less stigmatized and viewed now as a legal agreement that captures what belongs to each person at the time of marriage, and how things may be split up in the case of a divorce. They’re powerful documents because they can shorten legal battles down the road and protect people you love like future kids, in the event you decide it’s not working anymore.

If you’re reading this now and realize that these conversions may have been helpful, postnup agreements are also increasingly popular (similar to prenup agreements, but signed after you’re married). Having kids is a common catalyst for postnup agreements as parents may newly contend with questions like: what if I stay home to look after the kids, or how can we protect the kids? 

When two is better than one

As a married couple, you’re evaluated together for new financial products like loans. Two incomes are better than one, because they’re less risky for a bank: if one partner loses their job, then the other partner still has an income and that increases the probability that they’ll be able to continue making mortgage payments. To a bank, when you’re less risky, they’re willing to offer better rates or larger mortgages/loans. This will be the case for houses, cars, and other types of loans you may take out.

How big of a benefit this is depends on the credit history of each partner: as you’re getting married, it’s helpful to talk about what kind of debt you may each have and to create a joint plan to pay things down and improve your credit history together. 

Once you’re married, you may have more options for health insurance because you can now choose to be on either your company’s health insurance plan, or your spouse’s company’s health insurance plan. That creates an opportunity to compare the two and choose which may have the best benefits, lower premiums or deductibles. 

When it comes time to look into life insurance (which many couples get once they have kids or buy a house), joint insurance policies where you buy two policies is often cheaper per person than just buying one life insurance policy.

And while marriage  may not be the right answer for every couple, the data does say that married couples are financially stronger than couples who date + live together. The median net worth (aka what you own – what you owe) for married couples is 4x higher than those who just live together. This higher net worth may be from a higher probability that they own a house, a higher savings rate, or a higher investment rate. 

In conclusion,

If you’re married now or thinking about getting married, it’s important to know that there are three important changes to your money when things become legally married:

• Filing taxes change: you’ll have the opportunity to choose whether to file jointly or individually
• Property laws are introduced: whether you keep your money in accounts under both of your names or just one of your names, state law can view things differently from how you and your partner might view them
• Two can be stronger than one: especially if you’re thinking about any new financial products like loans, life insurance, or healthcare. 

Sources:

• Dratch, Dana. “Why Marriage Makes Financial Sense.” Investopedia. April 23, 2012.
• “Financial Benefits of Marriage.” USA Today. Accessed June 27, 2024.
• Zangardi Haydon, Kelly. “Financial Pros and Cons of Marriage.” HerMoney. Accessed June 27, 2024.
• Emmons, William R., Ana H. Kent, and Lowell R. Ricketts. “As Fewer Young Adults Wed, They Become Poorer Than Previous Generations.” Federal Reserve Bank of St. Louis. Accessed June 27, 2024.
• Brown, Daniel. “Married People Have More Money than Singles.” TheStreet. Accessed June 27, 2024.
• Lane, Jim. “So You’re Getting Married.” Investopedia. August 28, 2019.