Valentine’s Day is fast approaching and weddings are all the rage. According to the Wedding Report, there will be around 2.5 million weddings this year – the most since 1984.
As an economist, I totally agree: marriage beats long-term partnership. I’m not an expert on how to meet the love of your life; my goal is to make sure you barter for a spouse or partner by understanding the economic resources and financial obligations you each bring to the table.
Yes, bartering for love sounds heartless, but it’s on full display on America’s 1,500 dating apps and websites.
Marrying for money is not a bad thing
I’m not claiming that money is the only deciding factor in matchmaking. For most of us, love transcends money.
But we humans have the ability to fall in love with many people. And there’s no shame in targeting your swoon on someone who can provide you with a higher standard of living.
Put it this way: If two people are identical in many ways except one wins twice as much as the other, don’t flip a coin. Go for the highest income, and yes, marry for money. You won’t be the first to play the oldest financial trick in the book.
Choosing to marry over long-term partnership can mean somewhat higher net taxes, but it comes with an array of valuable implicit insurance arrangements, which the formality and legality of marriage help. to be respected.
In addition to the short-term financial benefits of marriage, such as the implicit pooling of resources, there are also long-term benefits.
First, after only nine months, you are eligible to collect future Social Security widowhood benefits. Also, after one year of marriage, you and your spouse can receive future spousal benefits. And if you stay married for 10 years, you are entitled to divorced spouse and divorced widow(ers) benefits.
But, to be clear, with the way Social Security benefit formulas work, the spousal benefit will only be useful to spouses who earn very little in absolute terms and also earn significantly less than their marital partner.
The widowhood benefit, on the other hand, can be of considerable value to the spouse (or divorced person) who earns less, provided that the spouse (or ex-spouse) who earns more dies first.
Marriage can also benefit your long-term standard of living, although to a very imperfect and uncertain extent, if you receive spousal support in the event of a divorce.
An estimated 41% of all first marriages will end in divorce or separation, according to California society data law firm Wilkinson & Finkbeiner. Some 60% of second marriages go south, while 73% of third marriages will start with “forever” and end with “sayonara”.
Yet we all marry convinced that we will get there. Economists call this phenomenon “irrational expectations” – when people collectively believe in something that they collectively know is not true.
But wishful thinking about marriage comes at a terrible price. Many marriages end in an extremely costly divorce war, with children forced to take sides and family ties broken forever.
Perhaps it’s time to reset our idea of marriage from a lifelong partnership to a temporary arrangement that should be celebrated to last as long as it does, not lamented for its breakup.
Put a prenup on it
Take the case of hypothetical Sally, who wants her future wife, Sam, to stay home with the kids while she pursues her dream of becoming an entrepreneur. Sally is a go-getter. His plan is to borrow $1 million, build and sell a dream house, and use it to showcase his talents.
The problem, from Sam’s perspective, is that fulfilling Sally’s dream means giving up on her career. Plus, if they break up and the house sells for $500,000, Sam will end up with $250,000 of “their” debt.
Plus, Sally wants to live in Texas, which is far less generous with child support than, say, Massachusetts. So if Sally’s career takes off, but she takes off with the tile subcontractor, Sam will reap very little from her investment.
If Sally and Sam get married without resolving this potential conflict, Sam might get cold feet and file for divorce before co-signing the construction loan. But what if they sign a prenup that assigns, in the event of a divorce, all construction debt to Sally, but provides Sam with half of the profits if Sally’s business is successful for, say, , 20 years ?
This allows Sally to take her picture while protecting Sam.
Despite the obvious benefit of prenups, not signing one is a huge mistake that many people make. Whatever financial concerns would be addressed in a prenup will inevitably arise once you get married.
It is far better to negotiate in advance how things will work out than to feel that by getting married one party has lost their bargaining power by making financial decisions that could hurt them in the context. of a divorce.
My advice? When you kneel down and propose, pull two things out of your pocket – a sparkling diamond ring and a leather-bound prenup, which will surely be worth far more than its weight in gold.
Laurence J. Kotlikoff is a professor of economics and author of “Money Magic: An Economist’s Secrets to More Money, Less Risk, and a Better Life.” He got his doctorate. in economics from Harvard University in 1977. His columns have appeared in The New York Times, WSJ, Bloomberg, and Financial Times. In 2014, The Economist named him one of the 25 most influential economists in the world. Follow him on Twitter @Kotlikoff.