We are a couple in our early 30s without debt getting married for the first time and are considering not getting legally married to save on taxes. We both work, plan to continue to do so for the foreseeable future, and have fairly high incomes.
The primary benefits of marriage that we find, related to healthcare, insurance, and retirement do not seem relevant or useful to us at this time. Is there anything we are missing as we are thinking about this?
Do these considerations change if we have a child in the future?
Happy to set up some time with someone knowledgeable in both family law and taxes.
Thanks for your help!
Let's say each of you have $10 million in assets and that the plan between the two of you is that the survivor gets everything when one of you dies.
If you two are not married with each other, the estate taxes will be substantial. Whereas if you two are married with each other, you each can leave practically unlimited amounts to each other (if both of you are US citizens). (Eventually, the survivor will also die and there will be taxes).
Let's say each of you has not gotten around to doing his/her powers of attorney and other documents. Let's say one of you suddenly becomes very sick and is unable to let the doctors know what you want for your own healthcare. Your respective family members would have more authority to determine your healthcare than your unmarried boyfriend/girlfriend.
Being young does not mean one cannot suddenly die or become incapacitated.
In WA, the parents not married with each other can be ordered to pay back child support up to five years from the date of the filing of the petition to the time of the child's birth. Parents who are married with each other can be order to pay back child support only up to the date of the filing of the petition.
There exist both marriage penalties and marriage bonuses due to the interplay of credits, exemptions, and narrowed brackets at the higher ones. Generally speaking both high and low income people (without children) experience a marriage penalty when their incomes are fairly evenly earned, and yet the same couple with disparate incomes would experience a bonus. The penalty will be at most around 4%, I think, according to the Tax Foundation, which has an excellent article on this. Children most certainly change the equation, and your earning activities will also. For example, if one of you wanted to start a business, or you both did, in lieu of or instead of one W-2 job, the business losses could offset some of the spouse's W-2 income. I understand that you plan to continue earning as you are, but I'm going to suggest life is not that certain and you should revisit this decision in a year or two, at least for tax reasons. It's reasonable to expect substantive changes with the new administration. I wouldn't suggest you knowingly walk into a tax penalty, but as circumstances can change pretty quickly, you might want to stay on top of your earnings estimates and rate/exemption/deduction changes. You might be able to mitigate the penalty with good planning in use of your corporate benefits (max an HRA or company life insurance?).
On the legal side, in addition to the situations already described, spouses cannot enter contracts with one another, but domestic partners can. You can make each other beneficiary of your 401K or other company benefits, but you could each independently change that without notice to the other. If you are married, you can't take your spouse off a 401K or pension without them signing off. Spouses married to one another get spousal social security benefits. If you aren't married, you are not automatically responsible for each other's debts, but you might be. Spouses cannot be compelled to testify against each other, but domestic partners can. Spouses have some legal protections in the form of "conjugal rights," so if one of you is injured in an accident and can't engage in sex in the future, you'd not have the right to sue a negligent person or company for wrongfully taking that from you. Joint bank accounts don't become marital property if you aren't married, so if one of you takes off with joint money, you won't get help from a divorce court with that. Commingled assets would be problematic in a death or disability situation. There are discounts on many services, like disability or long term care because insurance companies know it's healthier to be married and therefore can be cheaper for you. Before you jump in and say you won't need long term care, this isn't just for the elderly, a road bike accident or head injury can create an incredible burden on your SO and family.
I would take marriage very seriously, even if not a lifelong commitment, something that will affect not just the two of you, but likely your extended families, which is part of why divorce is so difficult. It's rarely just two people who will be deeply affected by marriage and how it all goes for the two of you. I strongly suggest you have every reason of the heart and mind to do it, or just wait. High incomes and prosperity aside, marriage is an endeavor not for the faint of heart, and really, religion aside, designed by the "state" to protect and provide for children and also, to protect public health by making sure to test for STDs before issuing licenses, that bit a bit outdated. Wishing you the best.
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