Spring has finally arrived, bringing with it the dread of finals as well as, for the happy couples ready to tie the knot, the perfect season to hear wedding bells. Before you are seized by the moment to drop to one knee, however, keep in mind that love is not the only thing that can make or break a marriage. Financial consequences of getting married and the fluctuation of the economy can also play a huge part in most marriages.
There is a general sentiment that getting married is financially detrimental. Not only can the cost of the ceremony set you back by a cool $31,000, you and your new partner may be facing a higher tax rate when you get back from your honeymoon. Combining incomes into a single household frequently results in a couple jumping up a tax bracket and therefore paying more taxes than if they filed separately. This marriage penalty is one that is also shouldered by lower income families who, while not necessarily paying more taxes, can end up facing hurdles like having reduced eligibility for Medicaid, the program that can help pay for health insurance.
Despite these rather bleak predictions, getting married also brings with it many financial perks that can actually leave you better off in the long run. First of all, the marriage tax penalty normally applies to a couple with similar incomes. If you or your spouse has a much lower income than the other, the bump in combined income can be small enough that you would not jump up a tax bracket, especially with the much wider brackets for married couples. This means your tax bill could actually fall, giving you a marriage bonus. Taxes aside, you can also receive a perk in terms of Social Security down the line, since a lower-earning spouse can claim spousal benefits which can be up to 50% of higher earning spouse’s benefit. If your spouse passes away, their benefit can be payable to you. This edge given to married couple carries over to everything from inheriting Individual Retirement Accounts to cheaper insurance to an estate tax marital deduction. Some arguments even claim that simply being married means that you and your spouse are more inclined to work toward financial security, with thoughts of the future becoming more salient. A 2012 study showed that for households in their late 60s, the median savings of married households was 10 times greater than that of single households. The issue is becoming increasingly relevant as the percentage of Americans over 25 who have never been married is rising, many of whom might be remaining in domestic partnerships and so missing out on the potential benefits of tying the knot.
Of course, if you do not already have someone in mind, the likelihood of you choosing to marry anyone just for the financial benefits are almost nil. The reality is however, that you are likely to stay in an unhappy marriage for financial reasons. This means that the link between divorces and the economy can be much more interesting.
Picture the following scenario, you and your spouse have had a few tough months that have turned into a few tough years and you both want to call it quits. The ideal situation would be one where the house you both share is sold, giving you both a little boost for the separate lives that will now begin. The only problem is that house prices are too low for your payout to be worth it when factoring in the mortgage still owed on it, especially since living alone can be more expensive in terms of rent. The situation is further complicated if you one of you is unemployed or you both own a business together, which would mean that one or both of you would have to search for a job during times of skyrocketing unemployment. This is especially a pressing issue if you are a woman, meaning that you will probably carry a greater share of the financial burden of raising a child, yet will have more limited prospects in earning for your family. A 15% drop in per capita household income is the last thing you want to face. Add in the cost of a lawyer or the expenses of a long custody battle and the odds are that you would force yourself to bear it and grin while the economy recovered.
While some of the effect of a recession, such as the creation of the strain due to increased economic difficulties, can actually increase the odds of a divorce, the numbers suggest that in most cases the costs outweigh the benefits of splitting up during rough times. A 2012 study shows that one percentage point increase in unemployment is associated with a 1.5% decrease in marriage rates. This was exactly what happened recently in America. Divorce rates had plunged along with house prices during the 2008 crisis, as couples decided to wait till conditions were better before splitting up. Consequently, as the recession ended in 2009, divorce rates began rising again, almost recovering to the expected level by 2011. In fact, the jump in divorces could not only be an indicator of an improving economy, it could actually help drive it. A divorce means that two households are needed rather than one, a move that increases the demand for housing as well as other household goods.
All in all, the state of the economy has a bigger role to play in a marriage than may be initially apparent. Whether you are planning to ever tie the knot or are firmly convinced that weddings are not your style, be sure you are making the decision while keeping that in mind.