Is there money in marriage?

00:23, Mar 13 2012
Pre nups
CURRENCY OF LOVE: It's not highly romantic, but a pre-nupital agreement may not be a silly idea.

Back in ye olde days, marriage was often a more businesslike affair. The gains from the union might be a stronger relationship between clans. It might be the creation of a heir. It might even be a handsome dowry of three donkeys, seven goats and a bushel of figs.

Our pragmatic forebears would certainly be baffled by the basis of our current romantic marital bond - mutual affection, also known as love.

Though cashing up is hopefully no longer top priority for aspiring brides and grooms, it's not entirely absurd to think through the financial implications.

"I don't think anyone goes into a marriage with the calculated intent of making money," says Auckland financial adviser Susanna Stuart.

The author of Your Family Fortune - Money Strategies For You and Your Family, Stuart has quite literally written the book on family finance.

Whether calculated or not, Stuart says there's good news for those who choose to take a stroll down the aisle.

Most of the international research suggests that marriage increases the wealth of couples substantially, so that engagement ring might just be the best investment you make.

There's not much local research to go by, but a United States longitudinal study found married respondents increased their net worth by a colossal 77 per cent more than those living the single life.

Sociologists and economists alike scratch their heads over exactly why this is so. Popular theories include greater work ethic from people with family to support, and the cost efficiencies of shared living.

"The advantage of two people getting together and combining resources is obviously you can leverage yourself into, for instance, buying a property," Stuart says.

Some overheads, like rates and insurance, stay the same regardless of headcount. By marrying, says Stuart, you create an economic unit that shares the burden of expenses.

Pity the crazy cat ladies, spinsters, bachelors and forever-alone misanthropes: "People who choose to be on their own and want to forge a life on their own have it tougher."

But as far as actual law and tax policy goes, everyone's on equal footing - for now.

An income-splitting bill championed by the eternal Minister of Revenue, Peter Dunne, is currently meandering its way through the legislative system.

The purpose of the bill is to tax couples with dependent children on an equal share of their combined income, which would help the main earner slip into a lower tax bracket.

Already, Dunne has brooked a tide of opposition from critics, who cry discrimination. But what they might not realise is that the tax-benefit system is currently slanted against marriage.

MARRIAGE PENALTIES

The knowledge that getting hitched will slash your income by thousands of dollars could cast a cloud over the most jubilant wedding celebration.

"It's a huge disincentive, if you figure it out just in terms of income levels of the household," says Bob McCoskrie, national director of conservative lobby group Family First NZ.

In 2008, his group commissioned the New Zealand Institute of Economic Research to undertake some research around marital income - with interesting results.

What the report found were "marriage penalties" - parents would typically receive a higher total income if they separated, even after taking added living costs into account.

Let's say you're married with a couple of kids, and the sole breadwinner is pulling in $52,000. Living apart, your combined income would be more than $5,000 higher, despite the higher accommodation costs.

That gap gets even wider with two salaries. If mum works part-time and earns $12,480, and dad is still earning his $52,000, they'd actually be better off split up, to the tune of $9,325.

Ironically, marriage is not such a losing proposition if you don't have offspring running around underfoot. The penalties are higher for families with children because there's more government assistance targeted at them.

For those like McCoskrie who believe marriage is a founding pillar of society, it's something of a bugbear:
"If you're wanting to promote stability in homes, why are families who are married being financially penalised, as opposed to those where there is separation or even divorce?"

HOME OWNERSHIP

Would you prefer to own a three bedroom house in suburbia, buy a unit, or rent indefinitely?

If you're single and don't earn much, you better resign yourself to one of the latter two.

Mortgage broker Steve McGowan, managing director at Advoco, reckons somewhere between 70 and 80 per cent of first-home buyers are couples.

Property prices are still high, and frustrated buyers are all jostling for position - it's a rough market right now.

To front up for a mortgage on a single income, McGowan estimates you'd need to be earning at least $80,000.

"It changes dramatically when you're with a spouse," he says.

The banks look favourably on couples, because they have less expenses per person.

Even if your partner only works part-time and earns $20,000, that makes a big difference to the amount of cash you can borrow.

The other major benefit of a dual income stream is you can pay your mortgage off faster, which is something McGowan strongly advocates - "the savings are astronomical".

'TILL DIVORCE DO US PART

For every love struck couple standing at the altar gazing into each other's eyes, about one in three will end up divorced, bitter and consumed with regret.

A sad statistic. But if we're looking at the money in marriage, we can't ignore the debt in divorce.

The same US longitudinal study mentioned earlier found divorcees lost 77 per cent of their wealth, with the long decline starting four years before the actual divorce.

The process itself is expensive, says Susanna Stuart. But the real cost comes from the violent shift in circumstances as two incomes, assets and lifestyles diverge.

"Each party is worse off- even if you're the most wealthy party, you still have to halve the house, for instance."

Then there are the legal costs. Both parties need independent advice to sign off any agreement, and if it isn't settled quickly the costs rack up.

So how much will a typical divorce set you back?

"It really is how long is a piece of string," says Selina Trigg, a self-confessed family law geek and principal of Family Law Results.

It's not as simple as charging by the hour, she explains. There are 12 factors lawyers use to price fees, and so each case can vary hugely.

An amicable break-up hashed out around the kitchen table can cost as little as $2,000 to $3,000.

But an acrimonious split, fought tooth and nail and dragged through the courts, can rise well into the tens of thousands.

The key bit of legislation to take note of here is the Property (Relationships) Act, which typically divides shared assets or "relationship property" between the two.

If we're looking at marriage as an investment, the only winners when it crumbles are the gold-diggers sinking their claws into half of everything.

However, Trigg says you can choose to contract out of the Act beforehand - what most would call a pre-nuptial agreement - as long as both parties agree.

There's also a handy escape clause for Kardashian-style "marriages of short duration" of less than three years, which may foil the plans of said gold-diggers.

DE FACTO DANGER

Harrying and drawn-out property battles are not the sole domain of married couples. In fact, most of this article applies equally well to de facto partners.

For example, the Department of Work and Income treats de facto couples just the same as it does married couples.

While a marriage certificate is pretty unambiguous, de facto relationships are much harder to pin down.

Trigg says many people are surprised to learn they don't necessarily have to be living together to be in a relationship for the purposes of the Property (Relationships) Act.

"There could well be people out there who don't think they are in a de facto relationship, but legally they might be."

The main consideration is whether a couple has been together for three years, but that's only one factor out of nine used to assess whether a relationship exists, so there are plenty of grey areas.

"There's no decisive, is-his-toothbrush-now-hanging-in-my-bathroom, kind of test," Trigg says.

She's dealt with several couples who thought they were avoiding property claims by setting up rental or boarding arrangements.

But the Family Court would probably consider their relationship de facto, and so the home could be split down the middle.

DUE DILIGENCE

If you want to get hitched, or even just shack up with someone, it's probably best to leave money out of the equation, the divorce rate is high enough already.

Despite what our forebears would think, there's probably a reason why we've mostly moved on from dowries and donkeys.

That being said, forewarned is forearmed. Be aware that it doesn't take a golden ring - or even a toothbrush in the bathroom - to put you in a relationship.

And just to strip away the last tatters of romanticism, let's finish up on financial terms: Do your due diligence, choose your investment carefully (ie - suss out the mother-in-law), and watch your net wealth grow.

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