Marrying in the Cayman Islands -
that has to help, right?
I think I can unequivocally say you should not get married just for the tax benefit. The "marriage bonus" applies only in certain situations, and even when you get it, it's pretty minimal. More importantly, marriage is a pretty big deal, and has ramifications that are way more consequential than paying a little more or less in taxes.
(Note: The details I discuss below apply to U.S. tax and marriage law, but the overall thesis is, I think, sound.)
Why Get Married? - The Short List
- Worst case scenarios: Marriage provides a whole bundle of legal benefits that kick in at the worst moments of your lives. A married spouse can make decisions for a partner who is incapacitated in the hospital; they can visit a partner in the hospital (a legally unrelated individual can be barred from visitation, especially if the legal family is unsupportive); they can inherit their partner's property. These are chiefly the rights that LGBT marriage equality movement has been interested in fighting for. Generally these rights can be granted outside of marriage with various other legal instruments (healthcare proxy/living will, will, making them the beneficiary on various accounts, etc.) But it's extra money and effort to reproduce the rights of marriage individually through various other legal instruments. Marrying provides all these rights at once with one cheap, simple document you can get at city hall. Our marriage license cost us $55, no lawyers needed.
- Health insurance/employer benefits: If one partner doesn't have health insurance through an employer, marriage can enable the other partner to cover them through their own workplace plan. (Details of workplace plans vary. Some workplaces allow coverage of domestic partners, which may or may not be more expensive than coverage of spouses. Even after marriage, it's usually cheaper for each spouse to cover themselves individually, if possible.)
- Feelings: Some people have a strong emotional connection to the idea of marriage. They may wish to be joined in a public declaration of love and permanence as symbolized by the unbroken golden ring, witnessed and supported by the greater community, or whatever.
Why Not Get Married? - The Short List
- Divorce is expensive: Any financial benefit you may have accrued in marriage is generally wiped out by divorce - not just because you may lose assets to the other partner, but also due to unavoidable legal fees. Even partners who split amicably can have trouble keeping divorce costs low.
- Feelings: Some people are strongly opposed to the idea of marriage. They may see it as inherently sexist, monogamist, heteronormative, and anachronistic institution that has outlived its time. They may object to the idea that something as fleeting, fragile, and ineffably beautiful as a human relationship should be pinned down in this clinical, legalistic fashion, and believe that instead we should each be free to soar to whatever ocean calls us, or whatever.
So that's it! Those are, I feel, the chief considerations when deciding whether to marry.
Note that I have not included considerations related to moving in together or to throwing a wedding, since you can cohabit without marrying and marry without wedding-ing. Heck, you can have a wedding without getting married if you really want to. Just call it a "commitment ceremony" or a "Celtic handfasting" or a "party."
Handy Wedding Tip!
If you have a nonbinding handfasting and all your family and friends come and give you presents, but later you decide to get legally married after all, don't then have a wedding. People will revolt.
(For what it's worth, my partner and I decided to go ahead and do it, mainly because of the health insurance thing--I was unemployed--and because we were getting to a point in our relationship when we wanted all those worst-case scenario structures in place, but we are fundamentally lazy, so I figured we wouldn't get around to DIY-ing it. DIY-ing a wedding was easier and more fun.)
But let's say you've taken all that into account and you are still on the fence. You have met the love of your life and you will never, ever break up, so you're emotionally ready for the commitment that marriage entails, but you are neutral about the institution itself, and you're open to doing non-marriage documentation as needed for any legal rights you may wish to grant each other a la carte. So it really comes down to the tax issue.
When is there a tax benefit to marriage?
There is only a tax benefit to marriage under certain conditions. In other conditions, there is actually a marriage penalty. This chart sums it up. In short:
- Unequal incomes are good: The most benefit goes to couples where only one partner earns income. The least benefit goes to partners who earn equal incomes.
- Midrange incomes are good: Couples whose combined income is very high or low (roughly, those who make under $30,000 or over $300,000 a year) are least likely to enjoy a "marriage bonus" more likely to be hit with a "marriage penalty."
- File jointly: The "marriage bonus," in cases where you are entitled to one, can be maximized with a filing status of Married Filing Jointly. At the same time, you can't escape a penalty by filing separately. Married Filing Separately is usually the worst of both worlds (although there are corner-case reasons to do it - like if you have high medical expenses, which you can only write off if they exceed 10% of your income. It's easier to get over that threshold with just your income, not your combined income.)
Handy Tax Tip!
You file as married (jointly or separately), not single, in the calendar year in which you marry, no matter when in the year you married. So if you are expecting a marriage bonus and planning a January wedding, you might want to scooch it to December to spread the wealth to an extra tax year! You're welcome.
If you're hoping to marry for the tax benefit, therefore, you should be planning on the likelihood that you and your spouse will have very different incomes for most of your earning years. So you're likely to win in the tax game you're planning to pull a Don and Betty Draper (sole breadwinner + stay at home parent), or a Marshall Eriksen and Lily Aldrin (two incomes in very differently compensated industries), or a Don and Megan Draper (primary breadwinner + hopeful but largely unemployed artist).
It doesn't make as much sense to marry for the tax benefit if the income inequality is clearly temporary, like if you'd normally make about the same but your spouse was out of work this year. One the situation changes, you still have to keep on being married. You can't "unmarry" because your earning situation has changed and you suddenly are losing money in this deal - except by divorce, which would result in a much bigger loss than any marriage penalty.
Handy Relationship Tip!
Don't press your partner to evaluate the likelihood of their FINALLY WINNING THAT STARRING ROLE in order to evaluate if their income will rise and if, by extension, you should marry or not. It's not worth it.
With all that said, the tax benefit is so slim that it's not really worth even investing this much thought in. I mean, I think my partner and I saved about $90 this year. Pretty much any of the reasons for marrying or not marrying above should definitely trump this. I would think of any tax benefit as a cute little bonus to whatever situation you are already in. It is definitely not a reason to marry someone you are not so sure about, or if you are not so sure about marriage itself.