For richer for poorer: the economics of marriage

Marriage is an expensive affair. However, long-term, married couples enjoy significant financial advantages – as long as they don’t get divorced

 
While marriage has changed a great deal in the last decade, becoming a product of love and mutual respect rather than practicality, some are choosing to shun the institution entirely
While marriage has changed a great deal in the last decade, becoming a product of love and mutual respect rather than practicality, some are choosing to shun the institution entirely 
Author: Elizabeth Matsangou
October 28, 2017

Times are rapidly changing, but for many people around the world, marriage remains the ultimate symbol of happiness. And, of course, for the companies that facilitate this happiness, it remains a very lucrative industry.

According to an IBISWorld report on wedding services, the global market is worth an estimated $300bn per year – and that number is just a fraction of the whole picture. What’s less well known, however, is that marriage is also financially beneficial for the couple involved.

Over time, much has changed in the institution of marriage: from the 1950s, when marriage was about bringing together the traditional roles of men and women to form a union based on practicality and compromise, to today, when it is largely seen as a equal partnership rooted in love and mutual respect.

A growing number of individuals, however, are bucking a trend that stretches back centuries by choosing to unshackle themselves from society’s
once-paramount norms.

There are a number of reasons behind this, but the perceived protection of hard-earned assets is one of the most significant. However, though it is true that divorce can be costly to the point of bankruptcy, marriage actually tends to lead to increased wealth.

Indeed, married couples are considerably better off than their single peers – as long as they take the phrase ‘till death do us part’ literally.

Cashing in
In 2005, the most comprehensive study on the economics of marriage was published. Written by Jay Zagorsky, the report, Marriage and Divorce’s Impact on Wealth, closely followed the net worth of individuals throughout their 20s, 30s and early 40s, and found that the wealth of married respondents increased by around 14 percent for each year they were wed. “Compared to being single, married people almost doubled their wealth, increasing it over 93 percent,” said Zagorsky.

There are three main principles that explain this considerable difference. The first relates to savings – married couples save more, as thinking and living as a unit, so to speak, is more conducive to long-term financial planning.

Married couples are better off than their single peers, as long as they take the phrase ‘till death do us part’ literally

As Zagorsky explained: “Married people are more likely to buy homes or make other investments together than people who are co-habiting.” In essence, knowing the relationship is for life inspires a greater readiness to invest and plan for the future.

Cohabiting couples, on the other hand, tend to save and invest less, while keeping their finances separate. In this sense at least, they are not as fully committed to one another as married couples.

In the UK, for example, 31 percent of cohabiting couples keep their finances completely separate and just 54 percent are homeowners (in comparison to 74 percent of married couples), while their finances are in poorer health too, according to Aviva’s Family Finances Report.

What’s more, this trend of wealth accumulation has augmented considerably over time. “Marriage confers more economic and interpersonal benefits today than in the past, because two-earner families have a huge advantage over single-earner ones, and laws and social values encourage more equality and democracy for all family members,” said Stephanie Coontz, Director of the University of Texas Council on Contemporary Families.

Another interesting aspect is that married couples are more likely to receive money from their families than their single or cohabitating peers. This is particularly the case when it comes to the wedding itself, with monetary gifts being customary in cultures around the world. In many countries, it is also common for parents to help newlyweds buy their first home.

What’s mine is yours
The second principle is that the sharing ethos of marriage is especially beneficial in terms of both daily and longer-term expenses. For example, there is little difference in the cost of home insurance or heating for a dwelling used by one person or by two, so the cost is considerably lower when split.

The same economies of scale apply to numerous purchases: married couples can share cars, household appliances and furniture, rather than each buying the same things independently.

Finally, there is the division of labour. Married couples share the responsibility of looking after their home, meaning that less time is lost compared with those who live alone. Household chores and other daily administrative duties can be allocated based on each partner’s strengths and schedule, increasing efficiency and effectiveness.

What’s more, the spouse with the less demanding job, for example, can do more in terms of housework and errands, leaving the bigger earner to focus more on their career. In turn, this can help the latter excel in the workplace, get promoted, and bring home a bigger paycheque.

The difference with single peers is stark. It can be increasingly difficult for a single person to cover all their household chores and expenses alone, while also having a full-time job that grows more demanding over time.

This becomes even more problematic for single parents who must also raise children by themselves, leaving little room for savings and, in many cases, career progression.

This combination of factors makes married couples significantly better off. “By the time they reach their 50s, married couples generally have about three times the assets their single peers do,” said W Bradford Wilcox, Professor of Sociology at the University of Virginia.

Coinciding trends
While the above has been borne out statistically, there is some bias to note. Interestingly, nowadays, people who choose to get married are more likely to be in a better position to accumulate wealth in the first place.

“Today, those who are better educated and earn more are also more likely to get and stay married. So one reason the married are wealthier is that today’s group of married men and women are more selective,” explained Wilcox. Coontz added: “The big story is the growing gap in marriage rates between educated, professionally employed people and less-educated workers whose real wages have stagnated or even fallen over the past 40 years.”

Indeed, getting married is itself a marker of financial stability. In many cases, couples wait and save until they are financially secure before taking this step, particularly if the intention is to have children one day.

Weddings can be a huge expense, implying pre-existing wealth and available financial support from families, supporting the notion that modern marriage is, to some extent, an institution of the well-off.

Modern relationship trends play a role here too. “The availability of divorce means that people feel a greater need to be confident in their partner’s commitment before they invest in joint ownership of assets or take on debts to pay for education or a house,” Coontz explained. “The benefits of egalitarian marriage also depend on negotiating skills, and the investment of time and energy in the relationship, all of which are easier for people who are not struggling with chronic economic insecurity.”

Divorcees face a reduction in wealth of

77%

The annual value of the US divorce industry is

$50bn

State bonus
Marriage and wealth have always been deeply intertwined. “For thousands of years, marriage was itself a way of accumulating resources,” said Coontz. “Whether by expanding the family labour force, as in some ranked horticultural societies where ‘big men’ collected wives and used their labour and their children’s labour to establish networks of dependence, or in class societies where marriage was a way of making military alliances, consolidating claims to aristocratic rank, raising capital, and forging advantageous alliances.”

Over time, states began to assert authority over who could wed, prohibiting some groups from marrying others and barring illegitimate offspring from inheriting wealth. This level of control was consolidated by the 19th century.

Western governments around this time began to charge themselves with making marriages valid. Thereafter, marriage licences were used to authenticate all the benefits of marriage, including the entitlements of bereaved spouses.

Marriage licences became even more important when social welfare programmes were established during the following century. This consolidated rights to benefits, which is of particular significance in the US, where family healthcare plans can only be accessed by married couples.

“Over the past few decades, there have been successful efforts to disconnect certain rights from possession of a marriage licence, but a legal marriage still confers much more security in terms of access to benefits,” said Coontz. “Unmarried partners or singles do not get many of the legal and economic benefits that remain linked to a marriage licence.”

As a case in point, according to the Aviva report, nearly one in five cohabiting respondents are under the false impression that they are fully entitled to bereavement benefits. Such discrepancies in the law, which are common across the globe, mean that unmarried individuals are more open to financial risk than their married counterparts.

I do not
Despite the economic benefits, however, marriage rates are on the decline on both sides of the Atlantic. That said, it is worth noting that this decline is linked to age: as more and more couples leave it later in life to wed, the rate of marriages falls.

That said, as Coontz explained, there may be gender factors at play too: “It is certainly true that the growing economic independence of women, and the lessened economic clout of many men, have removed some of the older incentives to wed.”

This is exacerbated by an increased fastidiousness in choosing the ideal partner. With the freedom to choose who we spend our lives with, fewer of us than ever are willing to settle. This is a significant divergence from even the recent past, when marriage was seen more as a compromise and a necessity in life’s progression.

Mounting inflexibility is also linked with finances, according to Coontz: “People are afraid to get tied down to someone who could become an economic liability.”

The fall in the rate of marriage correlates with a decline in the rate of divorce (see Fig 1). The figures suggest that in being more selective with one another, and by waiting longer to tie the knot, married couples are less likely to separate.

“I think couples marrying today are often better educated, more committed, or more religious than couples marrying a generation or two ago,” said Wilcox. “All these factors combine to reduce their risk of divorce.”

Coontz elaborated: “This is one of the most interesting trends we are seeing. All the ‘rules’ about what makes for a satisfying marriage and what predicts divorce are in flux.

Up until the 1980s, marriages where the wife had more education than her husband had a higher rate of divorce. That risk has now disappeared. Recent studies show that when a wife earns more than her husband, that too has ceased to raise the risk of divorce.

Men with egalitarian views are now more likely to marry than traditional-minded men, and less likely to divorce. In Europe, especially in countries with good work-family support systems, dual-earner couples are now less likely to divorce than couples with a single breadwinner.

In the US, couples who share childcare and housework now report the highest marital and sexual satisfaction, again a reversal of findings about marriages formed in the 1960s to 1980s.”

However, as Wilcox explained, the inverse is also true: “Divorce and family instability are especially common among the poor and working classes. My own research, for instance, suggests divorce is about three times more common among less-educated Americans, compared to college-educated Americans. So, the family revolution of the last 50 years has left working-class Americans doubly disadvantaged – they have fewer socioeconomic resources, and they
face more family instability.”

Costly goodbye
Despite numbers falling, the divorce industry is still booming. In the US, this surge can, to some extent, be attributed to the introduction of the ‘no fault’ divorce in 1970, which enabled couples to split without proven wrongdoing.

Today, more than 800,000 divorces take place in the US each year, according to the National Centre for Health Statistics, making for an industry that is worth a mammoth $50bn a year.

As financially beneficial as marriage can be, the impact of divorce can be worse than if a couple had never married in the first place. First, the economies of scale are immediately lost as the couple reverts to separate homes, and begin paying for products and services individually once more.

Then there is the cost of divorce itself to consider. “Divorce is expensive in out-of-the-pocket terms, such as paying for lawyers and court fees,” said Zagorsky.

The cost of legal fees and the final settlement naturally depends on the net worth and earning power of the individuals involved. At the extreme end of the spectrum, divorce can cost the higher earner of the pair millions – billions even.

When Formula One tycoon Bernie Ecclestone divorced his wife Slavica after 23 years of marriage in 2009, a settlement of $1.2bn was reached, while the 1999 divorce of Rupert Murdoch from his wife Anna cost the media tycoon a whopping $1.7bn.

Topping the list of most expensive divorces, however, is that of French businessman Alec Wildenstein from his wife Jocelyn in 1999, which was estimated to cost the former $2.5bn.

The costliest divorces of all time

$2.5bn

Alec Wildenstein and Jocelyn Wildenstein (1999)

$1.7bn

Rupert Murdoch and Anna Murdoch (1998)

$1.2bn

Bernie Ecclestone and Slavica Ecclestone (2009)

$874m

Adnan Khashoggi and Soraya Khashoggi (1980)

$435

Mel Gibson and Robin Moore (2009)

Such high figures may not be applicable to the average person, but the relative cost is still significant. Though a barrage of ‘quickie divorces’ advertised online now offer couples the opportunity to split for fees as low as $299, the traditional route with legal firms can cost between $15,000 and $20,000.

“Divorce is also very time-consuming and takes people away from work – you can’t earn money if you’re sitting in a lawyer’s office. In combination, these factors reduce savings, which drags down wealth,” Zagorsky explained.

Of course, when numerous assets are involved, the cost can quickly escalate, particularly when combined with a lengthy marriage and the involvement of children. For this reason, a growing number of couples – an increase of 63 percent in the past three years, according to the American Academy of Matrimonial Lawyers – are choosing to sign prenuptial agreements, or pre-nups, as they’re commonly known.

Prenuptial tension
For many individuals, the idea of a pre-nup is utterly unromantic – the expectation that things will eventually go awry perhaps even revealing something about a partner’s deepest feelings. In a sense, the thought of preparing for the worst before even starting what is meant to be a joyous journey seems like a sure sign of trouble ahead. However, the logic behind pre-nups is not so simple.

For high-net-worth individuals, having a pre-nup in place offers confidence that their hard-earned wealth, inherited assets and children’s birthrights will be secure.

They proceed with pre-nups not in the expectation of failure, but from a desire to be prepared for any eventuality, and to ensure they do not lose decades (or even centuries) of accumulated wealth in a relationship that is – by comparison – short-lived.

Ultimately, with divorce as accessible and ubiquitous as it is, pre-nups are by no means a wholly misjudged precaution.

That said, just because there is a pre-nup in place does not mean that one’s pre-existing assets are completely protected in the event of divorce. There are many reasons why a court may find a pre-nup to be void; it could be deemed fraudulent if one partner failed to disclose all of their assets to the other, for example.

There are also cases where one party was forced to sign the contract against their will, and cases in which a lack of understanding from one party is enough to invalidate the agreement.

Other stumbling blocks included signing without legal representation, incorrect paperwork, and the inclusion of preposterous provisions, including difficult-to-believe clauses against weight gain.

Until death
Marriage can be a wonderful thing – it can provide lifelong companionship, invaluable support through good times and the bad, and a level of intimacy born from enduring commitment.

It can also help create a better life for a couple – and any children they may have – through the amalgamation of finances, earnings and savings. By sharing everything from a home to chores, married couples are in a stronger position than their counterparts to accumulate wealth.

Of course, the picture is not completely black-and-white. As recent evidence shows, those who are better educated and more financially stable are more likely to marry, and so tend to be wealthier in the first place.

As financially beneficial as marriage can be, the impact of divorce can be worse than if a couple had never married in the first place

But such factors do not invalidate the economies of scale that marriage confers, nor the statistical tendency to save and invest more when wed.

While this could inspire some people to marry purely for the financial benefits, however, the cost of divorce is far greater than the gains of marriage. Together with legal fees and potential lost assets, exiting a marriage can see divorcees in a considerably poorer position than if they had never married in the first place, and this may be the case even with a pre-nup in place.

According to Zagorsky, divorcees face a calamitous 77 percent reduction in wealth, which could easily lead to financial ruin. Clearly, when deciding to marry, the stakes are high – in financial terms alone, it’s best to be absolutely certain, or else just say ‘I don’t’.