Same-sex couples have won the battle for marriage equality and can secure many, if not all, of the benefits of marriage offered by federal and state laws. It may be time to consider if marriage makes good financial sense.

The proposition of marriage can be a different question for same-sex couples who have successfully managed life together for years without the formal institution of marriage. 

Are there underlying economic costs to saying “I do” that could deter some same‑sex couples from marrying?

Here are some points to consider.

Paying Taxes

If you are not married, you most likely file your income taxes as an “individual.” That status naturally changes when you get married. All married couples must file their tax returns as “married.” But at what cost?

For many couples, marriage can help reduce their tax burden. Whether marriage saves money or results in higher taxes depends on factors including the individuals’ income levels and whether the married couple files “jointly” or as “married filing separately.”

All married couples must file their tax returns as “married.” But at what cost?

Following the enactment of the Tax Cuts and Jobs Act, the so-called marriage penalty has been eliminated for virtually all combined incomes under $600,000. Consider the following examples:[1]

Assume that Heather has taxable income of $185,000 per year, all of which is ordinary income, which puts her in the 32% marginal federal income tax bracket as a single taxpayer. Based on the tax rate for a single individual, in 2022 Heather would pay $39,432 of federal income tax. Tanya has taxable income of $65,000 per year, all of which is ordinary income, which puts her in the 22% marginal federal income tax bracket as a single taxpayer. Based on the tax rate for a single individual, in 2022 Tanya would pay $9,917 of federal income tax. Unmarried, together their combined tax liability in 2022 would be $49,349. If Heather and Tanya marry and file a joint federal income tax return, their combined incomes will be $250,000, which will place them in the 24% marginal federal income tax bracket for married individuals filing a joint return. Married filing jointly, in 2022, their tax liability would be $47,671, a savings of $1,678.

However, the result would be an increase in tax if Heather and Tanya had higher incomes. Assume that Heather has taxable income of $360,000 per year, all of which is ordinary income, which puts her in the 35% marginal federal income tax bracket as a single taxpayer. Based on the tax rate for a single individual, in 2022 Heather would pay $99,753 of federal income tax. Tanya has taxable income of $320,000 per year, all of which is ordinary income, which also puts her in the 35% marginal federal income tax bracket as a single taxpayer. Based on the tax rate for a single individual, in 2022 Tanya would pay $85,753 of federal income tax. Unmarried, together their combined tax liability in 2022 would be $185,506. If Heather and Tanya marry and file a joint federal income tax return, their combined incomes will be $680,000, which will place them in the 37% marginal federal income tax bracket for married individuals filing a joint return. Married filing jointly, in 2022, their tax liability would be $186,149, a tax increase of $643 (a so-called “marriage penalty”).

Some couples with disparate incomes may find a lower income earner pulled into a higher marginal tax bracket when filing jointly. Accordingly, it is important to do the analysis. Whether filing singly, as married but with separate returns, or jointly with a spouse, all taxpayers should carefully evaluate their particular circumstances with their tax advisors.

Protecting Property

One of the most important benefits of marriage is the ability to protect your assets from future creditors. In some states and the District of Columbia, married couples may take title to assets, such as their home and bank accounts, in a way that limits how creditors may attach those specially titled assets. This is particularly helpful when, for example, one member of the couple files for bankruptcy because of an illness, a failed business, or being “upside-down” on a big mortgage.

Unless you have a valid prenuptial agreement, saying “I do” may be like giving away half of your assets.

This special titling is called Tenants by the Entirety (TBE).[2] Once a couple is married, they may title some or all of their assets as TBE. The creditors of either member of the couple cannot attach the assets titled as TBE to the married couple. If the couple owned the assets simply in a so-called “joint tenancy,” a creditor of either could be able to take some or all of the jointly titled property. Of course, a TBE will not protect the property from creditors holding a couple’s joint liabilities (that is, both spouses are liable).

Benefits, Retirement, and Social Security

A couple anticipating marriage should not ignore the different levels and types of benefits afforded to married couples versus domestic partners. In many circumstances, benefits may not be available to domestic partners that are available to married couples.

If your employer offers spousal benefits such as health insurance, married couples may be able to “benefit shop,” choosing the employer’s benefit plan that offers the best benefits at the best price. Being married provides a distinct benefit in the case of benefits received by the spouse of an employee, as such benefits are generally received by the employee without being subjected to income tax.

For unmarried domestic partners who receive the same employee benefits (if the employer even offers benefits to domestic partners), the value of the benefits for the domestic partner is generally taxable income to the employee for federal income tax purposes.

A same-sex couple should also consider the potential Social Security benefits available to them as a married couple. An individual is eligible for Social Security retirement benefits on his or her own work record. Married couples, however, are eligible for retirement and survivorship benefits based on their spouse’s work record, whether or not they are entitled to benefits of their own. For some couples, marriage could mean greater financial security during retirement, especially if a spouse dies and the survivor is able to receive a larger retirement benefit based on the spouse’s work record.

There are nuances and complexities to claiming Social Security benefits for married couples. The Social Security Administration urges couples to file a claim, even if they are not certain they are eligible.

For couples in a legally recognized civil union, there may be some benefits available. In any case, it is important to consider what is available and realize that without a legally recognized relationship, these benefits may not be available.

Your Stuff, My Stuff, Our Stuff

With increased benefits come increased responsibilities. Marriage is a contract, and the laws of your state of residence determine your responsibilities.

Unless you have a valid prenuptial agreement, saying “I do” may be like giving away half of your assets.

Equitable distribution means generally that your marital assets are divided “equitably” by a judge in the event of divorce, which could be costly.

Aside from matters of property, described above, marriage offers intangible benefits too. One such benefit is legally recognized rights, such as the ability to have control when one member of a couple is sick or dies. Now that same-sex marriage is recognized, same-sex married couples can enjoy the peace of mind of knowing that they are legal next-of-kin when making decisions for a sick spouse and will be in control of the spouse’s estate at death, absent other arrangements.

Nevertheless, just because marriage equality is now recognized, there is no substitute for creating a financial and estate plan by getting your documents in order—even if you are married.

Get Advice

With the opportunity to marry coming later in life or after amassing personal wealth, many same-sex couples may find themselves concerned with the economics of marriage. 

While one cannot reduce the emotional decision to marry to a numerical analysis, it is better to know what lies ahead financially when making a life-changing decision.

 One thing is certain: there is no substitute getting good, coordinated advice from your legal, tax, and financial advisors.

For more information, please contact your PNC Private Bank advisor.