In this Part, we will take a look at the potential impact of some of the proposed tax raises - and see if they help the young lawyer and her spouse live the American dream.
The Proposed Tax Increases
As I mentioned in Part 1, I can't really predict what is going to happen with regard to tax rates. However, there is a lot of chatter that taxes will be raised on those making "over 200K/year" as a single and "over 250K/year" as a family. If this comes to pass, then it will be even worse for our associate to be filing as married-joint (assuming that she continues to work).
For example, one proposal that I read calls for an additional surcharge of 3.8% on "single" income over $200K and "married-joint" income over $250K. If both the associate and her boyfriend are earning $185K and file singly, then they completely avoid this surcharge. However, if they filed as married-joint, then addition to the $9,300 extra that they would pay under the current tax system, they would pay an additional amount of ($370,000-$250,000)*3.8% = $4,560. That means that filing as married-joint instead of single would cost them a total of $13,860/year - which is pretty huge. Over 5 years, and considering salary increases, that could be a total cost of $85,000.
Quite frankly, I don't know of a single realistic tax reform proposal that would make the situation better for the associate. That is, her taxes are most likely going to get worse next year - I don't know how bad, but the marriage penalty that she would be paying next year is likely to be even more than this year. In planning going forward, I would think that it would be reasonable for her to look at the cost of getting married (in round numbers) as costing her and her spouse between $10,000-$15,000 PER YEAR in taxes - at least as long as she continues to work. Also, remember that this amount is going to continue to rise each year as their salary goes up.
Closing Thoughts
The young lawyer lady in the e-mail mentioned that she was considering just having a commitment ceremony instead of getting married. Although there are many considerations other than financial ones, from the financial side it looks like getting married is going to cost them at least $9,300/year in taxes - and maybe up to about $15,000/year. Consequently, from the financial aspect, getting married at this time would be very costly - and the cost would continue and increase in subsequent years. This is an especially concern because both the lawyer and her potential spouse are still paying off large student loans.
For the pro-marriage crowd, I want to be quite clear that there are a lot of other considerations besides financial when it comes to getting married. Personally, I am married with a spouse that for the most part does not perform paid work outside the home. However, if I were dating another high-earning attorney, both of us had loans to pay off, and it was going to cost us $10,000/year to get married, I would certainly have to think hard to delaying the wedding - at least until we got our student loans paid off. For very religious people, maybe there is a moral issue - but outside of that, what's the rush? Especially when it is so costly.
Thinking of it another way - it is really pretty financially unreasonable to take on debt to pay for a wedding on top of debt for student loans. It is also non-optimal to have a $30,000 outlay for a wedding when that could have gone to outstanding student loans. Ideally, both spouses would enter the marriage debt-free and would save up for their wedding before it takes place. (I know that sometimes the bride's family pays for the wedding, but when the bride or groom is a lawyer I have found that the bride and groom typically end up paying for all or most of it - after all, they are "rich lawyers". I paid for all of mine. Most of the lawyers that I know also paid for all of theirs. If someone else paid for yours - then good for you.)
Actually, let me be more clear - in the situation above when I would be marrying another associate and we would both have loan debt, I would delay the wedding at least until we got our student loans paid off. Why? Well, the big firm reality today is that one of the spouses (or maybe even both) are going to be bounced from their firm some time in the next 3-5 years (all my best to the young lady lawyer and her boyfriend, but those are the odds). Further, if they get bumped, then their compensation is likely to go way down (it is very difficult to find a good replacement job these days) - and they would feel a lot better about having paid off their student loans. In the event that I was in that situation and my job - or my spouse's - went away, I would feel really bad about spending $10,000/year to proclaim my status as "married" when that money could have been better spent paying off the loans.
After the student loans were paid off, the timing would probably be right if my spouse wanted to cease working in order to have a child - and we could transition to married-joint. Alternatively, if my spouse wanted to continue working, it would be a dilemma for me. I think that I would still feel bad about throwing away $15,000/year - at least until after our retirements and the children's college were squared away. However, societal/parental disapproval is pretty powerful stuff. On the other hand, telling the parents that getting married is going to cost you $15,000/year might lessen the pressure.
One aspect that the young lady lawyer seems to have a good grasp of that the "it's so unromantic" crowd does not is that for most people working at a big firm, it's like being a player in the NFL - you will make a bunch of money, but your career can be very short and you never know when it might be over (it can end without warning), so you better be sure that you get yourself set up for retirement ASAP. Get those student loans paid off. Then get that retirement squared away - and do it now.
Not scared enough yet? Here's a quote from Law360 (unfortunately behind a pay wall), but also reported at ABA Journal:
Almost 27 percent of the 65,000 nonpartner lawyer jobs in the nation's top 200 law firms, or 17,500, could be eliminated or shifted to lower-paying assignments in the next five to seven years, according to an analysis from a top executive at legal consulting firm Hildebrandt Baker Robbins.Bottom line, delaying the wedding ain't sexy, but it is financially savvy in the present highly risky environment.
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