Introduction to Marriage Concepts
There's a lot of background to understand when it comes to assessing the implications of marriage. I've divided these concepts into multiple parts in an attempt to make it less overwhelming.
Importantly, none of this is legal advice. I'm not an attorney and can't give you legal advice.
This is general educational material, which (among other things) will help you decide if you should seek out the counsel of a licensed attorney.
Click on each of the orange headings below to expand. 👇
If you’re in a committed romantic partnership - and especially if you live together - there are some legal implications you should understand. Even if you elect not to get married, the legal system may have something to say about who is entitled to what property and income if your relationship were ever to end.
If choose to legally codify your relationship, marriage is the most obvious way to do that. And thankfully, marriage is an option available to all couples in every state, regardless of sexual orientation.
But in many states there is another option. Several states offer some form of non-marriage registered domestic partnership.
But even if you decline to use either of those formal legal options, the law may recognize your partnership in some way. That’s where common law marriage and cohabitation come into play.
This writeup will walk you through the basics of each of these so you can make the right decision for your partnership.
This is the most straightforward option and the one the most folks are familiar with. There are a lot of implications to marriage - which we’ll discuss in detail later - but one of the biggest advantages of marriage is that it is super clear. If you become legally married, you are in a very clearly defined relationship that is recognized by all levels of government: federal, state and local-municipal. That matters because the different levels of government afford you different types of rights and benefits. We’ll discuss more about those rights and benefits later.
Importantly, marriage is governed by state law. Your marriage needs to meet the requirements of the state in which you wed. If those requirements are satisfied, every other state government will recognize your marriage as valid.
Registered Domestic Partnerships
In several states, including California, the state government has extended an option to committed couples other than marriage. In California, it’s called a Registered Domestic Partnership. It may have slightly different names in different states but the concept is the same.
Registered Domestic Partnerships were primarily created to offer same sex couples an option because (at the time) marriage was not available to them. This was a pretty good option at the time... but today, not so much.
The problem with these Registered Domestic Partnerships is that they are recognized at the state level but have no recognition at the Federal level. This creates a mess. You each would have to file your Federal tax return separately - as two single, unmarried individuals. But at the state level, you would file your taxes as a married couple. There are other complexities as well when it comes to transferring property between one another. And if you decide to end your relationship, you’d still need to complete a judicial process essentially identical to divorce.
In general, registered domestic partnerships offer all of the downsides of marriage with a fraction of the benefits. The general advice is to avoid them. If you want to get married - do that. But don’t muddy the water with this suboptimal solution.
Common Law Marriage
You may have heard rumors of this thing called common law marriage. The way it sorta works is that if you’ve been living together and acting as a married couple for long enough, the government decides that for all intents and purposes you are married and classify you as such - even though you never chose to get married.
Common law marriage is probably something you need not worry about. Most states have formally eliminated common law marriage. At the time of this writing, the states in which common law marriage still exist are Colorado, Iowa, Kansas, Montana, Rhode Island, Texas, Utah and the District of Columbia. But even in those states, you generally have to be representing yourself as a married couple - which if you probably aren’t doing. And common law marriage is hard to prove. Wikipedia isn’t a definitive source on anything, but I do find this entry provides a good intro to common law marriage if you’re curious to learn more.
If you want to be married, get formally married - don’t rely on common law marriage. And if you don’t want to be married, the common law marriage is unlikely to apply to you.
Just because you’re unlikely to be classified as married if you didn’t choose it, that doesn’t mean that the court system has nothing to say about your relationship. If you’re in a long-term relationship, and especially if you live together, the courts may have an opinion about how you divide your assets and income.
This is a tricky and muddled area. The legal system hasn’t entirely caught up to the reality that many unmarried couples exist.
The good news is that the legal system in general attempts to make things as fair and equitable as it can. The bad news is that can mean that the outcome is unpredictable. There have been court cases in which former, non-married partners have sued one another. This has given rise to the fun term “palimony” - alimony that’s required even without a formal marriage.
For that reason, many attorneys recommend that committed couples enter into cohabitation agreements which stipulate who owns what and who would get what in the event the partnership ends. This type of agreement is similar to a prenuptial agreement.
Do most people do this? Of course not. This isn’t necessarily a big deal, but it is one you should be aware of.
If you do decide to complete some type of cohabitation agreement (or a prenuptial agreement for that matter), both individuals should have their own legal counsel (e.g. a family law attorney) to ensure that the courts don’t later throw the agreement out for some reason.
You might have heard of the difference between "community property" states and "common law" states when it comes to marriage. But what the heck do those confusing terms mean, and how do they apply to your choice to get married? That's what we'll cover here.
When it comes to getting married, the biggest legal question typically relates to matters of the balance sheet. Balance sheet? What the heck is that?
The balance sheet is a geeky accounting term for a financial statement that summarizes everything you own and everything you owe. Everything you own includes all of your assets: cash, financial accounts, investments, vehicles and real estate to name a few. Everything you owe includes all of your debts and liabilities, including credit card debt, mortgages and student loan debt. When it comes to personal finance, that balance sheet is often referred to as a Net Worth Statement.
Marriage plays a very important role in defining who owns what and who is responsible for which debt obligations. Marriage also dictates who has what claim to the income each spouse earns. And of course, income ends up being deposited in some type of financial account, which if of course an asset. And marriage always has something to say about who owns what assets.
Separate Property (& Separate Debt)
Broadly speaking, within a marriage there are two types of property: separate property and shared property. They are basically exactly what they sound like. Separate property is property that belongs exclusively to a single individual within the marriage - it is not jointly owned by both spouses. In contrast, shared property is that property which is shared (usually 50-50) by both spouses.
There are three types of assets which are commonly separate property: assets acquired before the marriage, gifts received by a single spouse and inheritances received by a single spouse.
Whatever assets your bring into the marriage are typically yours - you don’t automatically share them with your spouse. And gifts and inheritances received remain property of a single spouse - regardless of when they are received (e.g. before or after getting married).
The same applies to debts - if one spouse comes into the marriage with pre-existing debt, that debt obligation remains the responsibility of the spouse who took on the debt. The debt burden does not typically automatically attach to the other spouse.
Separate property is all well and good, but you have to be able to prove that it is, in fact, separate property. Documenting in some way where the assets (or debts) came from and where they are held is important. If the marriage ever comes to an end, there is a pretty decent chance the courts may assume all property is shared until proven otherwise.
And what happens to income and assets acquired after you get married? That’s when things get more complicated...
Two different approaches: Community Property & Common Law
Marriage is defined and governed by state law. For that reason, we have 50+ different sets of rules around marriage, which makes is confusing and ambiguous to say the least. All states recognize marriages formed in other states (as well as most foreign jurisdictions). However, the state in which you live dictates what rules govern your marriage.
Different states have diverging approaches to how martial assets are shared. States generally fall into one of two camps: community property states and common law states.
The term common law is one that is thrown around a lot in our legal system. It’s confusing because the term “common law” refers to different things in different contexts. You may have heard of common law marriage. That is (confusingly) entirely distinct from the common law property classification we’re discussing here.
Common law property classification and community property classification are just that - property classifications. Whether property is classified as community property or as common law property impacts a lot of things. It dictates rights of ownership, rights to income from that property, rights and responsibilities of management and control, who gets what in the event of divorce, and rights to pass on the property either during life as a gift or at death.
Community Property States
Most states do NOT use the community property classification system. But some really big states do.
Nine states use community property exclusively: California, Washington State, Idaho, Nevada, Arizona, New Mexico, Texas, Louisiana and Wisconsin. In Alaska, you can opt in to community property classification. Guam and Puerto Rico are also community property jurisdictions.
If you live in one of these community property states, any assets acquired after you get married - and all income earned during the course of the marriage - is automatically community and split 50-50 between the spouses. It doesn’t matter who earns the income, who actually purchased the asset, or if only one spouse is listed on a title document as being the sole owner - both spouses share ownership equally (e.g. 50-50).
The same applies to debts incurred during the marriage - the are the responsibility of both spouses. It is the obligations of the “marital community” and is an equally shared burden.
Remember, the assets acquired and debts incurred BEFORE the marriage remain separate property and are not automatically converted to community property.
Because community property treatment applies to income, even if married spouses file taxes separately, all income is split 50-50 between the spouses. That can have major implications for any government programs which use taxable income as a governing factor. These programs include Federal student loan Income Driven Repayment programs as well as other government benefits and subsidies. This treatment can be either a benefit or a downside, depending on your particular circumstances.
Community property isn’t an option - it’s the mandatory treatment (except in Alaska where couples can choose to opt in). This ownership structure might sound a bit rigid - and it is - but it is designed to protect a non-earning spouse.
If an engaged couple decides the automatic community property classification system doesn’t reflect their wishes, they can also enter into a prenuptial agreement which can modify some (but probably not all) community property treatment. This is a complex maneuver where both individual should have their own legal representation.
This article from The Balance provides some additional good detail on community property states.
Common Law States
If you don’t live in one of the community property states, you live in a common law state. Common law states give you a lot more flexibility, but things can also be a lot less clear.
In common law states, the ownership of income, assets and debts is generally dictated by who earned the income, owns the asset or takes on the debt. Asset ownership is most often stipulated by how an asset is titled: either individually or jointly. You might have noticed you can have either an “individual” or “joint” bank account. The same goes for investment accounts and how real estate assets are titled.
So that’s all pretty straightforward: the couple gets to decide who owns and is responsible for what. And that’s fine, unless the marriage comes to an end. In divorce proceedings, common law states typically follow an “equitable distribution” strategy. That means that the courts determine a “fair” allocation of marital assets and debts based on a variety of factors, which vary from state to state. You can learn a bit more about equitable distribution here if you’re interested.
Like in community property states, engaged couples can enter into prenuptial agreements which (if properly implemented) override the equitable distribution treatment. Agin, this is a complex maneuver where both individual should have their own legal representation.
This article from The Balance provides some additional good detail on common law states.
What’s the Bottom Line?
The most important thing to understand is that marriage has a major impact on how income, assets and debt obligations are shared between spouses. There are substantial differences in treatment between states. And especially if you move from a community property state to a common law state (or vice versa), things get confusing quickly and there can be unintended consequences.
It pays to think through the details, and work with a qualified family law attorney to ensure that your wishes will be honored in the future. Especially when those wishes deviate from the default treatment of the state in which you currently live.
Defining and discussing ownership before getting married (such as with a prenuptial agreement) is in my view a loving approach to both of your future selves.
Alright, now that you’re up to speed on the basics of how partnerships, marriage and cohabitation work, let’s dive into the nitty gritty of getting married!
There are many implications to being legally married - and I’ll dedicate a section to each of the major ones here.
Once you get married, you have the option to file your taxes Married Filing Joint. You can also file Married Filing Single, although this is less common and generally the tax code makes it less financially appealing to do so.
Married Filing Joint means that the income you both make all gets lumped together - you don’t file two separate tax returns, you file a single, joint tax return. This pooling together of your income is what is sometimes referred to as the tax marriage penalty.
But what about that penalty? How bad is it? Naturally, it depends.
The tax penalty is the most painful when both couples earn about the same amount of money. In that scenario the overall income taxes you pay will often increase somewhat.
But if one spouse earns substantially more than the other, typically once married overall you’ll pass less tax by filing joint. You’ll get access to a higher standard deduction and you often can end up in a lower marginal tax rate.
One word of caution, is that if either (or both) of you are benefiting from any government program that uses reported income (usually Adjusted Gross Income) to determine benefits, getting married will impact this. The most common one I run into is being on an Income Driven Repayment plan for Federal Student Loan debt. If this is currently an issue for you (or might be in the near future), it’s pays to run the numbers and figure out strategy before running to the alter!
Transfer & Related Taxes
When you transfer assets between people, sometimes taxes are assessed on that transfer. Or the transfer itself triggers a re-valuation of the property which might increase assessed tax, such as property tax (looking at you, California).
The good news is that transfers between spouses are virtually always excluded from all of these taxes. Unmarried couples, not so much - under the law, transferring an asset to your committed partner is the same as transferring it to a stranger.
What in the world are transfer taxes? We don’t think about it much, but the Federal government has two big transfer taxes: the estate tax and the gift tax. These transfer taxes are similar to income taxes: the government takes a percent of the value of whatever assets your transfer to someone else - either by gift (during your lifetime) or through your estate (after your death).
The reason Federal transfer taxes aren’t currently a big deal is because the current exemption is over $10 million What is an exemption? It means each individual can transfer assets with total value up to the exemption amount before owing a penny in transfer taxes. So unless you own more than $10 million of assets, this isn’t going to be an issue for you. At least right now. That exemption amount has moved around a lot in the last few decades - and I expect as the government continues to navigate deficits, it will continue to do so.
It’s worth nothing that some states (though few) also assess transfer taxes - and the exemption amount is typically much lower.
And as I mentioned above, there are some nuanced state laws to consider. In California, when real estate property is transferred, the value is re-assessed at the current market rate. That often means your property tax bill will increase - sometimes by a LOT. But a transfer from one spouse to another is exemption from this re-valuation.
Legally married spouses are entitled to one another’s Social Security Benefits. Any status other than marriage doesn’t provide that. In fact, if you’re not married, chances are you won’t be entitled to any of your partner’s social security benefits. This may not seem like a big deal, especially if you’re younger, but it can be meaningful if the spouse with a higher “earnings history” were to pass away unexpectedly.
Legally married spouses also receive special and advantageous tax treatment for retirement accounts formerly owned by their deceased spouse. Only marriage conveys these benefits.
The bottom line to note here is that the government does a lot to protect the rights of spouses. And they do little (and sometimes nothing) to protect the rights of unmarried romantic partners.
Employer Benefits (& Taxation)
When you’re legally married, you’re entitled to share in many employee benefits. If one spouse receives healthcare coverage through an employer, the other spouse is typically guaranteed access to the similar coverage, although you often have to pay extra for it. There may be other smaller employee benefits that can be shared between legally married spouses - but the big one is typically health insurance.
More progressive employers may extend healthcare and other employee benefits to unmarried but cohabitating partners. But that’s still the exception rather than the rule. And there may be income tax to be paid on some portion of the benefit extended the non-employee partners - such benefits are typically tax exempt when the non-working partner is a legally married spouse.
Spousal Benefits & Protections
State laws provide a wide range of benefits and privileges to married couples. These include typical things like the right to visit one another in the hospital and make medical decisions for one another. The state works hard to protect the intimacy of the marriage relationship: outside parties (like extended family members) have very limited ability to interfere in the decisions married couples make for one another and their collective assets.
Especially if you’re in a partnership where extended family members might be less than supportive of your relationship, marriage can provide a range of protections.
Unmarried couples have few similar protections. If you form a Registered Domestic Partnership, your home state may afford you many of the same protections extended to married couples. But if you travel to other states, you may find those protections don’t extend past the state line. Marriage, on the other hand, has universal recognition and protections at least in this country.
Many of these spousal rights can be created for unmarried couples through estate planning documents (e.g., powers of attorney and revocable trusts). While effective and powerful, it requires knowledge of and access to those documents at times when emotions are already running high and folks are stressed. When you’re legally married, things tend to happen more quickly and automatically. This in and of itself isn’t a reason to run out and get married, but underscores the importance of being prepared for unplanned emergencies.
Property Ownership & Rights
It is generally easier to jointly own property as a married couple. There are more default protections for both individuals. Unmarried partners do have decent options, but you have do a bit more work on the legal side to ensure both individuals have shared claim and ownership.
And married spouses have property right protections that unmarried partners don’t automatically receive. For example, married spouses have specific protected rights to financial assets in the retirement accounts of the other spouse (e.g. 401(k)’s and pensions).
If you choose to own property (especially real estate) as an unmarried couple, you likely need to work with an estate planning and/or family law attorney to get things set up properly. One titling option is called "tenants in common." Under this arrangement, you each get to stipulate what percent ownership of the underling property you receive. It's a touch complicated, but probably better than just winging it, or having the title in just one person's name.
Responsibility for Debts
The responsibility for debt (mostly) depends on whose debt it is. Debt incurred prior to marriage remains the responsibility of the spouse who borrowed. Debt incurred after marriage depends both on who borrows (e.g. signs on the dotted line) as well as if community property rules apply. If you’re in a community property state, chances are that debt belongs to both of you regardless of who actually borrowed.
But remember that lenders will go after whatever assets they can reasonably get their hands on in the event of default. In community property states, all income is shared 50-50, so the indebted spouse’s creditors will have the right to go after their half of the income. Equally, creditors will have claim to any financial accounts (and other assets) which are titled jointly.
The bottom line is that while debt isn’t necessarily shared, you still need to think carefully about how to protect financial assets, especially if you suspect you may get close to defaulting.
As is perhaps painfully obvious by now, the rules regarding who owns what between romantic partners are complicated. Not only that, things can get muddled and unclear quickly. Even the well-intentioned and complex treatment the legal system imposes by default may not reflect how you and your partner want things to be handled.
Enter prenuptial and cohabitation agreements.
Prenups have a bit of a bad reputation, and there is certainly room for abuse. Cohabitation agreements are something most folks haven’t even heard of.
But both of these agreements, in principal, attempt to accomplish the same thing. That is, to stipulate exactly how the couple would like assets and obligations to be shared, owned and divided under various circumstances.
The lofty goal is to get everyone on the same page, so that they’re aren’t nasty surprises for anyone down the road. As I discussed previously, even if you’re in an unmarried, cohabitating relationship the courts might weigh in on how assets are to be divided in the event the relationship ends.
This can be uncomfortable stuff to discuss with your significant other. It often forces you to openly discuss things that neither of you have fully thought through. And that’s sorta the point.
My friend and fellow financial planner Meg Bartelt wrote a good article providing an overview of prenups. This is, of course, something we can discuss as well.
And in the event you choose to put a prenup or cohabitation agreement in place, it is essential that both of you fully disclose everything you own and owe and that you each have your own legal representation to help you fully understand the implications. These agreements are often contested on the grounds that one of the parties did not fully understand the implications or what they were agreeing to.
Private Practice Ownership & Divorce
If you own all (or part) of a private practice - or any business - prenups and cohabitation agreements can play an especially important role.
Especially in community property states, the courts may assume that the non-owning partner is entitled to half of the business equity. That means post-divorce a non-therapist could be sitting with 50% ownership of your private practice. That ownership structure could also occur in common law states.
Having an unlicensed former spouse as a partial owner is obviously challenging. It gets even more complicated when using a special entity like a Professional Corporation or Professional LLC. That’s because the law requires that the owners of those "professional" business entities are properly licensed professionals. If an unlicensed ex-spouse suddenly becomes an owner, the business entity is non-compliant with the law - and that is a situation that needs to be remedied quickly.
Often instead of allowing the former spouse to become an equity owner, they are paid for their portion of equity ownership (e.g. they are "bought out"). That's a fine solution - but it requires cash on hand - or quickly finding a lender. That can be expensive and stressful.
All of this commotion obviously generates a lot of stress on the business itself - as well as everyone involved.
Prenups and cohabitation agreements can clarify in advance alternatives to avoid such uncomfortable situations. A fairly typical provision would provide that both spouses share equally in the earnings and income from the business during the marriage. But that only the spouse that actually founded and operates the business owns the business itself. In other words, that spouse owns 100% of the business - owns 100% of the equity in the business. That avoids having to "buy out" a former spouse down the road, and also avoids squabbles over how to accurately value the business equity in the event of divorce.
Again, working with a good family law attorney to put provisions like this is essential. Both partners should have their own legal representation such that they fully understand the implications of the agreement into which they are entering.
This stuff is obviously all pretty confusing. And I'm sorry to say if you move from one state to another it gets even a bit MORE complex.
The primary laws that govern marriage and asset ownership are state-level laws. That means when crossing state lines, a lot of things can change. That's especially true if your family moves from a community property state to a common law state (or vice versa). But complexities can arise any time you move between states.
Any big family transition - especially moving states - is a good time to review your legal affairs, including your estate planning and how your important assets and debts are owned.
As I've mentioned, the need to revisit things is especially pronounced if you move between common law and community property states. In general, property acquired while living in a common law state remains separate property of a single spouse (even after moving into a community property state). Similarly, property acquired while living in a community property state remains shared property, even after moving into a common law state.
But naturally there are important exceptions. For example, if you move into California from a common law state, all property that would have been community property if the married couple had been living in California automatically is treated as community property. But the opposite is true if you move into Texas. Both are community property states but have very different approaches to marital property acquired in common law states.
You can read a bit more about the complexity of moving from state to state here. But if you move states and have assets (or debts) you’re concerned won’t be handled the right way, I recommend you work with a family law and/or estate planning attorney to be sure everything is handled they way you’d like!