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Insights from The Mind Money Spectrum Podcast Episode #50
Getting married is one of life’s most exciting milestones. For high-performance professionals like you, it’s also an important financial decision with implications beyond love and commitment. In 2020, the pandemic disrupted many wedding plans, but it also created a unique opportunity to consider whether getting married—even if only via a small ceremony this year—can provide tangible financial benefits.
In this article, I’ll share key insights on how strategic marriage planning can affect your taxes, estate, and finances overall. With the right approach, you might just discover a hidden financial advantage that could pay for your honeymoon—or more. As a fee-only fiduciary financial advisor, my goal is to help you make decisions based on objective analysis and strategies designed to build your financial security and freedom.
Marriage and Taxes: Understanding the Basics
One of the biggest financial impacts of marriage lies in your tax filing status. After you tie the knot, you generally have the option to file jointly or separately on your federal return, with joint filing often being more advantageous—but not always. The government intentionally offers tax incentives for marriage to encourage family formation, but the nuances are worth understanding.
Standard Deduction and Tax Brackets: When you file a joint tax return, the standard deduction doubles compared to filing single. For 2020, the standard deduction was roughly $12,400 for singles and $24,800 for married couples filing jointly. Furthermore, the tax brackets for married couples are not just double—they are designed with wider income bands, potentially lowering your marginal tax rate if your combined income isn’t significantly higher than either of your individual incomes.
For example, if you earn $100,000 and your spouse has little or no income, married filing jointly usually lowers your tax bracket and overall taxes due compared to filing separately or singly. Why? Because your income is pooled, and some income that would have been taxed at higher brackets individually could now fall into lower brackets.
That said, if both spouses have similar, high incomes, marrying could potentially lead to a marriage penalty where you pay more taxes. It’s an important reason to run the numbers before making any assumptions.
More Than Just Income: Other Tax Benefits to Consider
Tax brackets are just the first piece of the puzzle. Some other significant tax benefits of marriage you should know about include:
- Capital Gains Exclusion on Your Primary Residence: If you sell your home, single filers can exclude up to $250,000 of gain from taxable income, but married couples filing jointly can exclude up to $500,000. This could mean substantial tax savings if your home appreciates—a valuable edge for married couples planning homeownership.
- Gift and Estate Tax Exemptions: When you get married, your lifetime gift and estate tax exemption effectively doubles. As a single individual in 2020, you could gift up to approximately $11.58 million over your lifetime without incurring gift tax, but as a married couple, that exemption jumps to about $23.16 million. For most professionals, this is a protection against unexpected estate tax burdens, especially as exemption amounts could be subject to changes under future tax legislation.
- Increased Annual Gift Exclusion: You and your spouse can each give $15,000 (in 2020) annually to any number of individuals without reducing your lifetime gift exemption. Together, that’s $30,000 per recipient per year, enhancing flexibility in tax-efficient wealth transfer.
Community Property vs. Separate Property States: Why Location Matters
Where you live also affects how your assets are owned and taxed once you are married. The United States categorizes states as community property or separate property states, which influences how marital assets are divided and transferred.
Separate Property States: Most states fall into this category. Here, property owned before marriage remains your separate property, and property acquired during marriage is owned according to whose name is on the title or account. This means each spouse technically owns half of jointly titled assets, much like tenants in common ownership between partners or business colleagues.
Community Property States: Arizona, California, Texas, Washington, Nevada, Idaho, Louisiana, Wisconsin, and New Mexico have laws that consider all assets acquired during marriage as jointly owned 50/50, regardless of whose name is on the account. This can have implications for estate planning and capital gains tax strategies—especially with the “full step-up in basis” benefit at the death of a spouse.
The Step-Up in Basis Advantage
One of the biggest hidden wins for married couples occurs around estate and capital gains tax, thanks to what’s called the step-up in basis. Essentially, when one spouse passes away, the cost basis (the value from which capital gains are calculated) of their assets is reset to the fair market value at their date of death. This eliminates capital gains taxes on the accumulated appreciation.
In community property states, spouses benefit from a double step-up in basis, meaning 100% of jointly owned assets receive this reset, potentially reducing large capital gains tax bills when the surviving spouse later sells appreciated assets.
In separate property states, only half of the jointly owned assets typically receive the step-up, leaving more gains subject to tax upon eventual sale.
If you live in a separate property state, estate planning strategies like asset transfers between spouses before death need to be considered carefully and ideally coordinated with an estate attorney and tax professional to maximize benefits.
When Marriage Can Backfire: The Marriage Penalty
The concept of a “marriage penalty” arises when combined incomes push couples into higher tax brackets, leading to more tax owed than if they were single and filing separately. Such situations often occur when both spouses have similar high incomes, particularly above the 24% to 32% bracket thresholds. Additionally, complications with alternative minimum tax (AMT), incentive stock options, or deductions can cause surprises.
It’s critical before rushing to the altar (from a tax perspective) to run the numbers, especially if you or your partner have complicated income sources like stock-based compensation or multiple deductions. Using tax software or consulting a CPA can provide clarity on whether marriage will provide a savings or create a penalty for your unique income profile.
Practical Steps for Financially Savvy Couples Ready to Get Married
If you and your partner are considering getting married this year or next, here are actionable steps to put the power of financial planning in your corner:
- Model Your Taxes Two Ways: Use tax software or work with your accountant to simulate your tax outcomes filing as singles, married filing jointly, and married filing separately. Look at your federal, and if relevant, state taxes. This exercise will help you understand the potential tax benefits or drawbacks of marriage in your current situation.
- Evaluate Your Income and Deductions: If you have significant differences in incomes, investments, or itemized deductions, understand how combining them might shift your brackets or reduce certain credits. This includes retirement plan contributions and Health Savings Account eligibility.
- Review Estate Planning Documents: Marriage affects wills, beneficiary designations, powers of attorney, and healthcare directives. Ensure these are updated to reflect your marital status and intentions, especially if you live in a community property state.
- Understand Property Ownership Laws: Know whether you reside in a community or separate property state, and consider how this impacts asset ownership. If necessary, discuss with legal counsel about prenuptial agreements to protect specific assets.
- Adjust Your Payroll Withholdings: Once married, you may need to update your withholding allowances or estimated tax payments to avoid surprises come tax time. This is especially true if your combined income bumps you into a different tax bracket or if one spouse has significant additional income.
- Use Gift Tax Exemptions Wisely: Married couples can double their annual gift exclusion amounts, enabling effective tax-free wealth transfer to children, family members, or even charitable causes.
Could Your Marriage Pay for Your Honeymoon?
With thoughtful planning, the tax savings and financial advantages of marriage can add up significantly. For example, couples with a combined $200,000 to $300,000 income may save thousands annually in taxes by filing jointly. Add the real estate capital gains exclusion benefit, estate tax protections, and gift exemptions, and you could have enough in savings to offset your wedding or honeymoon expenses.
This isn’t about marrying solely for financial gain, but rather understanding the full picture you face when you make this big life decision. With intention and strategic guidance, you can position yourself to not only enjoy your honeymoon but also set yourself and your family on a stronger financial trajectory afterward.
Final Thoughts
Whether your relationship is ready or your wedding plans are delayed, marriage can trigger important financial and tax effects you should prepare for—and potentially benefit from. Given the complexities, I encourage all high-performing professionals considering marriage to treat it as both a life milestone and a financial event. Run the numbers, seek professional advice, and update your financial plan accordingly.
I firmly believe that sound financial planning is not about restricting your life choices but empowering you to make decisions that support the freedoms you want—in love, in career, and in life.
Ready to explore a tailored plan for your unique situation? Let’s connect and ensure your marriage is a cornerstone of your financial security and freedom.
Published: November 24, 2020
For more detailed discussions, listen to the original episode of The Mind Money Spectrum Podcast: Episode 50.
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Need More Help?
If you’re ever in need of guidance, these blog posts may be of help. But be sure to contact a financial, tax, or legal professional for guidance and information specific to your individual situation. And as always you can reach out to me directly here with questions or concerns about your personal situation.