The REAL Cost Of Not Getting Married

You've probably heard people say marriage is expensive, but what if not being married could quietly cost you hundreds of thousands or even more? Recently, I sat down with one of my staff to break down some of the biggest financial landmines that unmarried couples walk into without realizing it. From inherited taxes to Social Security to IRAs. If you're building a life with someone and you haven't planned for this, you could be setting yourselves up for a financial mess that you never intended.

How about an inherited IRA by a non-spouse? What is a landmine?

Yep. Huge landmine. So, think about the 10-year rule.

Mhm.

So, you decide you're going to leave your IRA, Spell, to someone who's not your spouse.

Mhm.

Well, you can do that.

Sure.

And they don't have to pay immediate tax on it. But, they only have 10 years to leave it in that tax-deferred environment, and within that 10 years they've got to get every dollar of it out of that IRA.

Down to zero.

Down to zero. And so, that means that best case scenario, they're going to take out 1/10 every year. Well, if they have other income or maybe their tax rate is pretty high already, that's only going to exacerbate things.

Yeah.

So, that's point one. And then juxtapose that with what if it was your spouse? Your spouse can inherit that IRA as though it was theirs from the beginning. And there is no 10-year rule. Now, it's lifetime rules.

Mhm.

Much better outcome from a tax standpoint. Much better outcome, period. But, you don't get that if you're not married unless you happen to be in one of the few states that look at marriage as more common law.

Yeah.

Right, or in the common law framework. That only happens in a few states. The majority don't view it that way.

So, one of the things that we hear from folks who sit at the table occasionally will say, "Well, we don't do this because it's costly to get married." Sounds like it could be extremely costly to not be married and then eventually pass away and then leave somebody with what sounds like quite a mess.

I don't know where these people are getting their information.

Yeah.

Because if you go check at the courthouse and ask for the price of a marriage license,

Yeah.

it's pretty cheap.

Mhm.

I believe less than $100.

Okay.

Right? So, you can go get that marriage license for literally pennies.

Yeah.

You screw up and allow a non-spouse or significant other to inherit something like a million-dollar IRA, which people all over and from all walks of life have IRAs today when they reach retirement that are going to be worth, if not already, they're going to be worth seven digits, a million plus.

Sure.

We just met with a client recently who had two and a half million in theirs. Not married and they had no idea that this existed, that it could become an inheritance nightmare.

Mhm. Yeah.

And their answer was, "Well, she's named as the beneficiary." Well, great. That doesn't mean anything. She's a non-spouse beneficiary.

A non-spouse beneficiary and there's a set of rules for a non-spouse beneficiary and they are not in your favor.

Yeah. And so that is going to cost far more than a marriage license.

Phil, let's talk about retirement gaps. That's one of the many landmines that people often find themselves standing on, unfortunately. But talk about through the lens of a non-married couple Social Security issues. What are the issues there that if someone's not married what can they run into?

Well, the simple one, the one that everyone's probably already thinking about here is when you're married regardless of what your income was,

Mhm.

whichever one had a greater level of income through their 40 qualifying quarters,

Mhm.

that might be enough for your spouse who maybe didn't earn as much, maybe they can piggyback on your Social Security and actually do better. Well, if you're not married that option goes away.

Yeah.

Everything when it comes to Social Security goes away and so you're both on your own,

Yeah.

so to speak. And so you have to hope that yours is as good as it could be.

But we've seen a situation plenty of times, Spell, where spouse worked but didn't make a lot of money and had a Social Security of roughly $15,000 a year.

Mhm.

But their spouse had a Social Security benefit of $40,000 a year or maybe slightly over that.

Yeah.

Well the spouse who didn't work as much or earn as much, they can simply say, "Hey, I want to piggyback on my spouse's benefit and get 50% of that."

Yeah.

That's more than their benefit would be based on their working years. And guess what? Even if they're divorced that spouse can still piggyback on their former spouse.

Unless they get remarried, but you're exactly right.

They get remarried, all bets are off. That's true. But if they don't, they can still piggyback.

Absolutely.

get that option if you never get married.

Yeah. It's a good point. It's point.

Now, the other parts of the gap would be that married filing jointly. So, we'll talk about this, I feel sure, in a few minutes, but from a retirement income standpoint, I say all the time, one of the greatest deficiencies or problems within the retirement income framework is tax.

Yeah.

And if you're paying too much in income tax, you're spending less in terms of retirement, or you have to take more from your retirement accounts, which means you might run out of money sooner. So, if we can control the tax environment then we're much better off. And if you're married, married filing jointly is likely going to give a better result.

100%.

So, why not save the tax? And chances are that little $50 marriage license is going to be peanuts compared to what you could save on the tax return.

Well, that is the third landmine, and it's all about tax. So, let's just stay there and continue in this framework for a minute. There are a lot of benefits to the married filing jointly status. One of which is higher income thresholds before you jump to the next bracket, right?

Much higher.

Yeah.

Much higher. So, if you're individual, if you're filing as an individual your income tax brackets are stacking much faster,

Mhm.

versus filing jointly you could make, as a married filing jointly type return, you could make, say, 3/4 of a million dollars before you hit the highest bracket.

That's true. A 37%.

You don't have that luxury as an individual.

No, you don't.

Right? It's significantly lower than that. So, from the beginning, it starts ratcheting higher very quickly.

Mhm.

So, that's not necessarily a reason to go get married. If people don't want to get married, I would say this, you don't want to get married purely for the sake of saving on your taxes. But, if you're living together, you love one another, you're making a life together, what's the big deal?

Yeah.

Right? What's the big deal? And why would you Here's the other thing, Spell. I've never met anyone who said to me, "I really want to fix my life so I can pay more tax." I've never met that person. No? Have you got

No, I haven't.

So, why not do the right thing? Being married is a wonderful thing. There's so many benefits that come with it beyond the tax, beyond retirement, beyond all of these things like inherited IRAs, etc.

Sure.

They're wonderful things. The implications of being married, I think, get misunderstood and people think, "Oh, well, I'll just I want to be independent. I want to control my life. And just in case things don't work out." Well, guess what? If they don't work out, divorce isn't that big of a deal. In fact, I think it's more structured

Yeah.

than getting separated when you don't have things laid out. And people that don't get married tend to not have things laid out very well.

That's true. That's true. Let's talk about structure. And usually synonymous with structure is legal. And the controls that you may be giving up if you are not married. So, talk to me about things like medical decisions or business ownership and asset control. How do those things get affected? How is that a landmine for some a couple that is not married?

Well, I think there's nothing automatic,

Yeah.

unless you take the time to put the right things in place, the right legal documents, if you have a business, if you don't get that dialed just right,

Yeah.

then just because you live together and just because you say, "Well, I intend for all of this to go to my significant other." Well, you can have all the best intentions that you want to have, but as the old saying goes, the road to hell is paved with good intentions.

True.

Right? So, you can have all these intentions, but that doesn't mean your wishes are going to be carried out.

Yeah.

So, you've got it If you're going to live together, going to cohabitate, and you're not going to be married, you don't have the legal things working in your favor, so you better go get them.

Yeah.

And even when you're married, you should still have a lot of these things, but when you're married, a lot of things default to the spouse,

Uh-huh.

in most states because it's your spouse.

Right.

Right? So, you can rely on that much better than you can a non-married couple without the legal documentation to create the outcome that you want.

So, Phil, what I think I hear you saying is the system, quote-unquote, is structured such that it is more lenient or it is built towards supporting a married couple more so than it is a non-married couple.

It's how the country was built.

Yeah.

It's how the country was built. The country was built on Christian values, so whether you believe in that or not, that's how our country was built, how our laws were created, it's where the Constitution really was derived.

Sure thing.

And so, it's no wonder that our society prefers

Mhm.

marriage.

Mhm.

That is viewed as a good thing.

Yep.

And you don't have to believe in it, but I can tell you this, if you want the law of the land to be on your side, you probably ought to get married.

Yeah.

Whether you believe in why it's that way, whether you believe in that is in maybe that's not part of your value system, but I can sure tell you this, the law is on your side when you're married.

Yes, it is.

Much more so than when you're not.

If you enjoyed this video, then be sure to click or tap the screen to check out our next video on the seven biggest retirement mistakes that people make.