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Valentine’s Day is almost here, and marriage is all the rage. According to the Wedding Report, there will be some 2.5 million weddings this year — the most since 1984.
As an economist, I’m all for it: Marriage beats partnering long-term. I’m no expert on how to meet the love of your life; my goal is to make sure that you barter for a spouse or partner understanding the economic resources and financial obligations that 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 isn’t a bad thing
I’m not claiming that money is the only deciding factor in pairing up. For most of us, love transcends money.
But we humans have the capacity to fall in love with lots of people. And there’s no shame in targeting your swooning on someone who can provide you with a higher standard of living.
Put it this way: If two people are the same in most respects, except one earns twice as much as the other, don’t flip a coin. Go for the higher earner, and yes, marry for money. You won’t be the first to play the oldest financial trick in the book.
Choosing to marry over partnering long-term may mean somewhat higher net taxes, but it comes with an array of valuable implicit insurance arrangements, which the formality and legality of marriage help enforce.
Marriage can mean important Social Security benefits
On top of short-term financial benefits of marrying, like the implicit joining of resources, there are long-term benefits, as well.
First, after just nine months, you’re eligible to collect future widow(er) Social Security benefits. Plus, after one year of marriage, you and your spouse are eligible to collect future spousal benefits. And if you stay married for 10 years, you’re eligible for divorced spousal and divorced widow(er) benefits.
But, to be clear, with the way Social Security’s benefits formulas work, the spousal benefit will be useful only to spouses who earn very little in absolute terms and also earn a lot less than their marital partner.
The widow(er) benefit, on the other hand, can be of tremendous value to the lower-earning spouse (or divorced person), provided the higher-earning spouse (or ex-spouse) dies first.
Get married, but always assume you’ll get divorced
Marriage can also benefit your long-term standard of living, albeit to a highly imperfect and uncertain extent, if you’re awarded alimony in divorce.
An estimated 41% of all first marriages will end in divorce or separation, according to data from California-based 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 we’ll make it. Economists call this phenomenon “irrational expectations” — when people collectively believe in something they know is collectively false.
But wishful thinking about marriage comes at an awful price. Many marriages end in exorbitantly costly divorce war, with children forced to take sides and family ties shredded forever.
Maybe it’s time to reset our idea of marriage from a lifetime partnership to a temporary arrangement that should be celebrated for lasting as long as it does, not lamented for coming apart.
Put a prenup on it
Take the case of hypothetical Sally, who wants her spouse-to-be, Sam, to stay home with the kids while she pursues her lifetime dream of being a contractor. Sally is a go-getter. Her plan is to borrow $1 million, construct and sell a dream house, and use it to showcase her talents.
The problem, from Sam’s perspective, is that fulfilling Sally’s dream means giving up his career. Plus, if they split and the house sells for $500,000, Sam will get stuck with $250,000 in “their” debt.
Moreover, Sally wants to live in Texas, which is far less generous in providing alimony than, say, Massachusetts. So, if Sally’s career takes off, but she takes off with the tile subcontractor, Sam will reap precious little from his investment.
If Sally and Sam marry without resolving this potential conflict, Sam may get cold feet and file for divorce before he co-signs the construction loan. But what if they sign a prenup that assigns, upon divorce, all construction debts to Sally, but provides Sam half the profits if Sally’s company succeeds for, say, 20 years?
This lets Sally take her shot while protecting Sam.
Despite the clear 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’s far better to negotiate in advance how things will be settled than have one party feel they have, in getting married, lost bargaining power in making financial decisions that could damage them in the context of divorce.
My advice? When you kneel down and propose, take 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 an economics professor and the author of “Money Magic: An Economist’s Secrets to More Money, Less Risk, and a Better Life.” He received his Ph.D. in Economics from Harvard University in 1977. His columns have appeared in The New York Times, WSJ, Bloomberg and The Financial Times. In 2014, The Economist named him one of the world’s 25 most influential economists. Follow him on Twitter @Kotlikoff.