Getting Married: How Does It Affect Your Finances?
Thinking about getting married? Get advice about marriage and money before you tie the knot.
Getting married is one of the most important decisions you’ll ever make. Not only is choosing the right partner critical for your happiness, but saying, “I do” also affects your financial life in ways you might not realize.
A podcast listener named Britt writes:
My boyfriend and I are in our mid-twenties and are trying to decide if getting married will help or hurt us financially. We have no children or other dependents, don’t earn much money, and my boyfriend is still in college. I’ve heard conflicting information from friends regarding how getting married will affect our taxes and my boyfriend’s eligibility for financial aid. How would tying the knot affect our financial situation?
How Does Marriage Affect Student Financial Aid?
When it comes to getting student financial aid, your eligibility amount depends on how you answer questions on the Free Application for Federal Student Aid or FAFSA. The more income and assets you have that are included in the formula for determining financial need, the less aid you’ll receive.
Dependency Status for Student Financial Aid
Marriage plays into financial aid eligibility because it changes both your dependency status and your finances. For the purposes of the FAFSA you remain a dependent of your parents until your 24th birthday, even if you don’t live with them or they don’t claim you as a dependent on their tax return. As a dependent, both your financial information and that of your parents’ must be figured into the formula that determines your financial need.
Getting married gives you immediate independent status, even if you’re younger than 24. As a young married couple, your financial aid would probably increase without having mom and dad’s income and assets included on your FAFSA. Therefore, if you and your spouse are not as financially well-off as the student’s parents, getting married before you turn 24 could maximize your student aid eligibility. However, if the parents don’t earn much and have several dependents or other children who are also in college, you might benefit by keeping your dependency status and waiting to tie the knot until after graduation.
Your Spouse Affects Your Eligibility for Student Financial Aid
Another way that getting married affects financial aid eligibility has to do with your spouse’s financial situation. If you’re married, both you and your spouse must report your financial information on the FAFSA, even if you file taxes separately. If you walk down the aisle with someone who has significant income and assets, then getting married would instantly shrink your financial aid eligibility. If you were single, you’d only have to list your own income and assets, which presumably would be less and would result in you receiving more financial aid.
Find Out How Getting Married Will Affect Your Financial Aid
To find out whether being single or married would increase your student aid, use the Expected Family Contribution (EFC) Calculator at aidcalc.com. You should also contact your school’s Office of Financial Aid and speak to an advisor about your situation. For more tips about maximizing federal student aid eligibility, be sure to read my previous post, 8 Ways to Get the Most Student Financial Aid.
How Does Getting Married Affect Your Taxes?
Now let’s turn to the other issue in Britt’s question: How does marriage affect taxes? Once you’re married, you have to file taxes as a married person, even if you don’t blend your finances. You must file as either Married Filing Separately or Married Filing Jointly. In How Does Marital Status Affect Your Taxes, I explain that filing jointly typically gives you more tax deductions and credits, which results in a lower tax bill. However, depending on your income, that may not always be true. Therefore, it’s best for married people to calculate their tax liabilities both separately and jointly so you can choose the filing status that saves you the most money.
As a side note, common law marriages, domestic partnerships, civil unions, and same-sex marriages are not recognized by the federal government as legal marriages, which means those taxpayers must file as either Single or Head of Household. However, a growing number of states that recognize same-sex marriage and have an income tax allow those taxpayers to file a joint state tax return.
What are the Benefits of Getting Married?
Married couples receive many financial benefits, including:
Automatically inheriting their spouse’s assets, even without having a legal will
Eligibility to receive Social Security survivor benefits if their husband or wife dies
Entitlement to benefits extended to spouses in the workplace, such as health and life insurance
Worker’s compensation benefits if their spouse dies on the job or from a work-related illness
Fully finding an IRA for a non-working spouse (find out more about how to take advantage of a spousal IRA in IRA Contribution Rules When You Have No Income)
This isn’t a complete list of marriage benefits, but the bottom line is that getting married has significant, far-reaching legal and financial consequences that should be considered carefully. My advice for Britt is to get married only when she’s ready and not to rush into a commitment just for a boost in financial aid. In addition, if delaying a wedding for a short period of time would help you avoid a financial hardship, waiting to get married could be a smart money move.
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How to Determine Your Dependency Status for Financial Aid
Expected Family Contribution (EFC) Calculator
Free Application for Federal Student Aid (FAFSA)
Estimate Your Eligibility for Federal Student Aid
Tax Incentives for Education-Related Expenses
IRS Publication 501: Exemptions, Standard Deduction, and Filing Information
IRS Publication 555: Community Property
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