[Editor’s Note: The following post was submitted by Bonnie Koo, MD, FAAD who blogs at Miss Bonnie MD. She is a private practice dermatologist in Pennsylvania. Regular readers know that Katie and I are huge fans of marriage and consider that union to be perhaps the largest determinant of our success over the last couple of decades. Studies repeatedly show that when it comes to both wealth and happiness that married is much better than single, and single is much better than divorced. So I almost hate running a post that potentially discourages my readers from forming and sustaining long-term marriages. Nevertheless, over the years I’ve had so many questions related to the financial issues surrounding tax, student loan, and employment policies that favor or disfavor marriage, that it would be a disservice to not cover them on the blog. I know many of you have delayed or avoided marriage in order to reap the very real financial benefits discussed in this post. Bonnie and I have no financial relationship other than she was a paid faculty member of WCICON18.]

The number of unmarried couples who live together are on the rise whether you know it or not. In fact, I’m willing to bet that some of your “married” friends are actually domestic partners. You may have attended their wedding but that does not mean they signed the legal document. Only their accountant or financial planner may know the truth.

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Marriage is a legal contract and offers benefits and consequences when the marriage ends in divorce. Historically, marriage was a business transaction between families. The concept of “I Love You” marriage is modern. Current marriage and divorce laws were put in place mainly to protect the wife, as women often were homemakers and would be financially devastated in the event of a divorce.

As more women join the workforce and become the breadwinning partner (as is often the case for women physicians), these laws can seem antiquated and often work against us. I am not suggesting that you never get married. But it may make a lot of sense to delay marriage for some time. There are a few, mostly financial, perks of cohabitating without signing a marriage certificate. For certain situations, staying unmarried may be the best move.

Unmarried Couples Save on Taxes

Prior to the Tax Cuts and Jobs Act of 2017, many dual professional married couples were subject to a marriage penalty tax. That’s because the married tax brackets were not double the single tax brackets. The penalty came into play when both partners made similar incomes. If one partner made significantly less, or was a stay at home spouse, then a marriage bonus may have applied.

The new tax law has largely eliminated the penalty, but it has introduced another penalty for married couples living in high income tax states — a limit on state and local tax deductions on tax returns, also known as SALT. SALT is now limited to $10,000 whether you are single or married. So, a married couple can deduct $10,000 versus two unmarried partners who can deduct $10,000 each.

There are a few other tax benefits for unmarried couples with children. One partner may file as head of household (HOH) and the other partner files as single. The 2019 HOH standard deduction is $18,350 while the deduction for filing single is $12,200 for a total of $30,550. Contrast this with married filing jointly whose standard deduction is $24,400 total.

Bonnie Koo Physician marriage

Bonnie Koo, MD, FAAD

If the unmarried couple with children also has access to a high deductible health plan with a health savings account (HSA), they can take advantage of having both a family HSA and a single HSA for a total of $10,500 versus $7,000 for a family HSA only. Hopefully, they are using it as a stealth IRA.

Unmarried Couples May Save On Student Loans

Staying separate can sometimes help with student loans. You may save tens of thousands of dollars if you’re pursuing income-based repayment, including pursuing Public Service Loan Forgiveness. This makes sense especially if you are with another high-income earner.

However, being married may be more advantageous if you live in a community property state (California, Texas, Arizona, New Mexico, Louisiana, Nevada, Idaho, Washington, and Wisconsin) and file taxes separately. In community property states, you can divide the combined income in half. This works well for someone with a partner who makes less.

These calculations can be complicated. I recommend seeking professional student loan advice before delaying marriage for this particular reason.

Blended Families are Complicated

When partners come together with children from previous relationships, they become a blended family. There is no doubt that this adds both emotional and financial complexity to the partnership. As a result, the divorce rate for blended families is about 60%, higher than for couples who bring no children into the marriage. If both partners bring in children, it approaches 70%.

We all know divorce can be financially catastrophic for physicians. I believe a prenuptial agreement is a significant and often overlooked element of asset protection for anyone entering into a blended family.

Those in blended families should also be aware of all the financial obligations your partner has. Read the parenting agreement which outlines the custody agreement and each parent’s financial responsibilities. Consult a family lawyer in the state of custodial residence of the child(ren) to discuss any precedents.

Although most, if not all, states consider the new spouse’s income separate, it can play a role in certain situations. For example, it does not stop an ex-spouse attempting to file for more child support. Courts have ruled both ways.

Because of the above, I believe forming a “legally” blended family is a top reason to delay marriage until the children no longer require child support and college assistance.

Financial Benefits of Marriage

There are plenty of financial benefits for married couples! You can gift unlimited amounts of money to each other, get access to your spouse’s social security benefits, and automatically be named next of kin. You can also share the estate tax limit — whatever your partner does not use goes to you (if you file an estate tax return). Married partners also have the ability to fund a spousal Roth IRA and to stretch an inherited IRA.

Access to health insurance is generally easier for married couples, although many employers now allow domestic partners to enroll.

Legal Documents for Unmarried Couples

If you opt out of a legal marriage contract, it is even more important that you have other documents in place for protection.

One of the most essential is a Last Will and Testament (LWT) for each of you. Your LWT allows you to name your children’s guardian(s). It will also ensure distribution of your estate according to your wishes. Otherwise, the laws of your state will determine which relatives get what and it’s a pretty sure bet your partner will be left empty-handed – probably after a nasty court fight.

Your LWT also allows you to name an Executor. Without an Executor, the court will decide who handles your estate and controls distribution.

You should each also have Durable Powers of Attorney in case one partner becomes incapacitated. If you don’t have one, again, the court will have to decide who has permission to make financial decisions on your behalf. Of course, we all know about health care proxies. Be sure you have one on file for your state of residence.

Because insurance and retirement account proceeds do not pass through your estate, be sure to update your beneficiaries. Otherwise, the courts will decide who receives the proceeds, such as your partner’s ex-spouse.

Don’t forget to have all of these documents signed and notarized according to the laws of your state or they will probably not be valid. Be sure to keep copies where the other partner can find them. Also, give your partner access to the passwords for your online accounts. Consider a password aggregator, such as LastPass.

Final Thoughts

The divorce rate for physicians is around 30% (lower than the average of 40%). [Editor’s Note: The data I have seen suggests lower numbers- 24% for one physician couples (Although the odds ratio of women to men is 1.51) and 11-20% for dual physician couples and that number is lower and dropping for younger people.] Premarital counseling, discussing common life and financial goals, and crafting a well-thought-out prenuptial agreement will go a long way. Every physician should consider a prenuptial agreement. You’re more likely to get divorced than die prematurely or become disabled. Most of us insure against death and disability, but we do not consider insuring against divorce.

I am not recommending that all couples should avoid or delay marriage. But postponing marriage may make sense for many.

Currently, I’m engaged but do not plan to get married until my stepson graduates college. We have a son together. Our main reason to delay marriage is because we are a blended family. We have wills, power of attorneys, and health care proxies in place. We have also named each other as the primary beneficiary on most of our insurance policies and retirement accounts.

Save the date! We are getting married in 2027!

What do you think? Would you delay marriage for the financial perks of cohabitation? Comment below!