Couples with disparate incomes

[Stormy Kromer]

DW and I got married 30 years ago.

From that day on we own everything together. She was a stay home mom while I earned 100% of our family's income. An even trade.

If you want to keep separate finances for tax purposes I would suggest filing separately.

You don't split the check at a restaurant after you're married.

 

[kgtest]

My first wife and I kept separate finances too. I made 2X what she made, so we did the 1/3-2/3 split on everything.

I make 3x DW...and I pay all of our combined income tax. I have her withhold 0 from her W2 paycheck, and I just pay quarterly MFJ.

It works for us. I also fund some of her 403b so I don't have to pay as much in taxes.

At this point in my life, I've gotten fairly used to paying the lions share, but I really appreciate all of her non-financial contributions to our partnership and it works out. Sometimes we get into some discussion about what is equitable and fair and such, but life is not fair and it is what it is.

 

[Koolau]

DW and I got married 30 years ago.

From that day on we own everything together. She was a stay home mom while I earned 100% of our family's income. An even trade.

If you want to keep separate finances for tax purposes I would suggest filing separately.

You don't split the check at a restaurant after you're married.

I think most couples probably feel okay about sharing input and output. But some couples do not. We have some friends who keep separate finances and it's probably a good thing. She's a great earner and he is a great spender. Because he can't get into her money, he can't spend it. They make it all w*rk for them. I couldn't do it, but they are happy.

 

[Sunset]

We keep our finances separate, as I had to in the beginning.

We just each pay for some stuff without actually calculating how even it is.

She pays Property tax and income taxes, and utilities.
I pay groceries, gas, restaurants, trips, insurance.

We each buy what we want from our own money.

 

[OnTheBeach]

My wife stopped working when my daughter was born - 23 years ago. We have lived off my income and have combined all our finances.

 

[Amethyst]

I'mwith HarveyS, sounds like some overthinking may be going on.

IMHO, in a marriage it's all "our" money, not like when you live together and fuss over who bought groceries last week versus who took the car in for service. The issues in an income-difference marriage are "What do we spend our money on" and "How to file our taxes." Same as when you earn the same amounts.

We had an income-difference marriage (after he retired, I made more). We were on the same music sheet about how the money should be spent.

Although we disliked paying extra for daring to have investment income, especially when AMT was a thing (scary to think of AMT coming back in 2025), running the numbers showed that MFJ beat MFS every time. So, run the numbers, see what the best filing strategy is for you, and then adjust your respective withholdings as needed.

 

[Amethyst]

Gaaaaah that would be my nightmare! Someone who wants to spend everything (or never spend anything, for that matter). Someone against whom I had to "defend" our assets. Noooooo!

She's a great earner and he is a great spender. Because he can't get into her money, he can't spend it. They make it all w*rk for them. .

 

[brett]

My wife stopped working when my daughter was born - 23 years ago. We have lived off my income and have combined all our finances.

Ditto for us. Most daily accounts have always been joint. We file taxes separately in our country.

The one exception is equity investment accounts. We have far more in her name than mine for various reasons.

 

[Music Lover]

DW and I got married 30 years ago.

From that day on we own everything together. She was a stay home mom while I earned 100% of our family's income. An even trade.

If you want to keep separate finances for tax purposes I would suggest filing separately.

You don't split the check at a restaurant after you're married.

Not everyone has been together for 30 years. I met my wife 5 years ago when I was already retired and collecting a pension. She had just retired with investments and a daughter in university.

I have my money, she has her money, and we have a joint account for shared expenses.

 

[athena53]

Not everyone has been together for 30 years. I met my wife 5 years ago when I was already retired and collecting a pension. She had just retired with investments and a daughter in university.

I have my money, she has her money, and we have a joint account for shared expenses.

I had that in my second marriage as well except that we had no joint accounts. We developed a system for sharing expenses and it worked.

The OP's question, though, dealt specifically with the consequences of under-withholding. I still stand by some of the allocation formulas described in previous posts so that the extra liability is shared fairly based on earnings AND withholdings.

One woman on another board I was on had a much-older husband collecting SS while she was still working and not withholding any taxes from his SS even though it was taxable because of their joint income. She just quietly paid the extra out of her own earnings and never told him.

 

[Sojourner]

But in the case of OP, why not calculate OP's share and DW's share of the taxes based on share of income that created the total tax bill? Subtract from that amount each person's withholding. Pay the remaining bill or split the refund accordingly. I'd forget about who made the most and "pushed" the duo into the higher tax bracket. What's a thousand or two between two people in a couple?

+1

This seems like the easiest and fairest approach to determine who pays how much of the tax bill, in a marriage where current income is tracked and kept "separate".

You don't split the check at a restaurant after you're married.

Even though this is intended to be funny/sarcastic, I am certain that many married couple who keep separate financial accounts actually do split the check.

IMHO, in a marriage it's all "our" money, not like when you live together and fuss over who bought groceries last week versus who took the car in for service. The issues in an income-difference marriage are "What do we spend our money on" and "How to file our taxes." Same as when you earn the same amounts.

+1

Call me dense, but I don't understand the point of getting married if each person's income during the marriage is somehow viewed as exclusively their own. I do understand keeping pre-marriage assets separate, since those were earned or acquired individually prior to the marriage commitment. But once a couple is married, seems to me that all money earned should be (and in most states, actually is) considered equally the property of both parties in the marriage. So, given that, the tax bill should be paid from the overall pool of money earned by both parties, with neither one having any greater or lesser claim to that pool.

 

[Amethyst]

She was an enabler of cluelessness.

One woman on another board I was on had a much-older husband collecting SS while she was still working and not withholding any taxes from his SS even though it was taxable because of their joint income. She just quietly paid the extra out of her own earnings and never told him.

 

[Stormy Kromer]

+1

This seems like the easiest and fairest approach to determine who pays how much of the tax bill, in a marriage where current income is tracked and kept "separate".



Even though this is intended to be funny/sarcastic, I am certain that many married couple who keep separate financial accounts actually do split the check.



+1

Call me dense, but I don't understand the point of getting married if each person's income during the marriage is somehow viewed as exclusively their own. I do understand keeping pre-marriage assets separate, since those were earned or acquired individually prior to the marriage commitment. But once a couple is married, seems to me that all money earned should be (and in most states, actually is) considered equally the property of both parties in the marriage. So, given that, the tax bill should be paid from the overall pool of money earned by both parties, with neither one having any greater or lesser claim to that pool.

Thats what I meant with the bill at the restaurant comment. Thank you.

 

[FLSUnFIRE]

Call me dense, but I don't understand the point of getting married if each person's income during the marriage is somehow viewed as exclusively their own. I do understand keeping pre-marriage assets separate, since those were earned or acquired individually prior to the marriage commitment. But once a couple is married, seems to me that all money earned should be (and in most states, actually is) considered equally the property of both parties in the marriage. So, given that, the tax bill should be paid from the overall pool of money earned by both parties, with neither one having any greater or lesser claim to that pool.

I gave some of the logic in my previous marriage in my response above. It wasn't critically anal, we proportionally paid into all joint expenses. Any personal spending choices was, in a way, "none of the other's business" and that reduced a friction point that is common in marriages. I splurge on this, she splurged on that, she didn't take care of her car (if it was "our" car I would have been livid), I bought a roadster (that if it was combined money, she'd likely not have approved of), etc. I'm so glad we did as it made the divorce easier and it was amicable and cheap (as far as divorces go). Money was not the issue leading to the divorce... the one thing we got right.



I don't ever see combining going forward, especially now as a FIREd single guy. Maybe much later in life after we've been together for years for estate purposes I'd get married and combine but I don't plan to get legally entangled with another at in the near future. W2R has my dream situation... I would love to find a life partner and have them live next door. -A cute renter just moved in but I think she's a bit too young and probably on a different path...

 

[perez99]

But in the case of OP, why not calculate OP's share and DW's share of the taxes based on share of income that created the total tax bill? Subtract from that amount each person's withholding. Pay the remaining bill or split the refund accordingly.

+1
Easy to calculate. Does not require to assign "deductions" or any other tax law/regulations to one party or the other. I think fundamentally fair

 

[dixonge]

I've always been perplexed by couples who keep everything separate. I get the initial hesitation early on, but after you've been married a decade or so, and given the legal treatment of assets in marriage, how can you not trust each other enough to jointly share the load?

When we married my wife was still in school part-time. 15 years later her career was peaking and she made double my salary. To this day her pension/ss is a little more than double mine. When we first retired our only income was her pension. So it wasn't even *possible* to split anything.

I do occasionally think about this, mainly when I get an urge to splurge on something purely discretionary, but since I have my own income I can mentally designate it as me paying for it, but we've always had joint accounts except for her one IRA.

 

[athena53]

I've always been perplexed by couples who keep everything separate. I get the initial hesitation early on, but after you've been married a decade or so, and given the legal treatment of assets in marriage, how can you not trust each other enough to jointly share the load?

Either system can work in a healthy relationship. I kept finances separate in my first marriage because my then-husband was a financial train wreck. It was only a partial solution, of course- since he spent every dime he made and maxed out his credit cards, *I* was the Emergency Fund. It was one of the things that eventually broke up the marriage.

Second DH was frugal and responsible. But, I'm a financial control freak and my first marriage made it worse. When we married, DH was 65 and I was 50. He did a little freelance work and I had the FT job. It was fine- he had his own checking account and whatever was left at the end of the month he gave to me and I invested it. (Investing didn't interest him.) I never once questioned what he'd spent- it was modest and he was an adult. We tended to run purchase decisions over $300 or so by each other first but I don't think we ever disagreed. Eventually I added him as a joint user for my credit cards so we could both rack up hotel and airline points.

Still, I know myself. If we'd had a joint checking account and he'd made an unexpected $100 ATM withdrawal it would have driven me crazy.

What made it work was that we had the same financial priorities.

 

[pb4uski]

On the OP's dilemma I think there is a simple and fair approach. Calculate the tax on a MFJ basis using 2x the OP's income so all deductions and tax brackets are shared and OP pays 1/2 of the resulting tax. OP's DW pays her 1/2 of the tax plus the additional tax on the dffference between the total tax on their return including all income and the tax based on 2x the OP's income.

So for example, if the OP has $50k of income and DW has $100k of income then calculate the tax based on $100k of income and split that tax 50/50, then DW pays her 50% plus the excess of the total tax based on $150k of income over the tax based on $100k of income.

That said, our finances are combined and have been ever since a couple years after we married.

 

[MarieIG]

I'll stick with pro-rata.

I would also recommend that OP does not approach DW with guns-a-blazing, to the effect that her income pushed him into a higher bracket; and this is all her fault.

It sounds as if OP had previously split the bills 50/50; so a switch to pro-rata is a change in and of itself. I think the discussion needs to be based on the discrepancy in income, i.e. that the tax "burden" this year is a hardship on him. From the initial post, it did not appear as if DW was either irresponsible or a spenderina. Further, had OP taken appropriate withholdings throughout the year, this would have been less of an issue.

It's one thing when Uncle Sam imposes a progressive tax rate - but I would not spring that on a spouse.

(The situation could easily be reversed next year.)

 

[ncbill]

There's usually been no marriage penalty with such disparate incomes.

That normally comes into play when both earn roughly equal amounts.

I'd just combine incomes in one account and pay all taxes off that, even if they choose to hold just that one account jointly.

 

[pb4uski]

There's usually been no marriage penalty with such disparate incomes.

That normally comes into play when both earn roughly equal amounts. ...

Generally not true. For example, a married couple with $250k of wages pays the same federal income tax as two singles with $125k of wages each.

https://www.irscalculators.com/tax-calculator

 

[Scratchy]

It's been a while since I last posted, but I'm struggling with a tax burden issue. Specifically, my DW earned substantially more than me in 2022 because she's in a sales related field. I'm very happy for her (and us). I didn't too too bad myself, but if we were single I'd be a tax bracket lower than her. Unfortunately, this tagged me (us) with the dreaded marriage penalty, resulting in a large tax bill. She tried to head this off last year by taking out extra withholding. I didn't because I thought I'd be fine from a withholding perspective. I used our tax software for me individually and that supported my theory, but when I added her income, our tax bill ballooned despite her additional withholding.

We keep our finances separate, but contribute to a joint account for bills. Splitting our large tax bill evenly seems odd due to her greater income pushing us into the next tax bracket. In the end, we will probably just need to have a discussion about it and see where that takes us.

I apologize if this method has already been proposed, but Treas. Reg. § 20.2053-6(f) provides a formula for determining a spouse's individual share of income tax, used in at least one situation where such determination is needed for federal tax purpose.

You calculate what each spouse's tax would have been if they filed a separate return and accordingly prorate each spouse's tax against total tax liability.

So the formula for each spouse is:

(each spouse separate tax ÷ the sum of separate taxes ) × total tax MFJ.

i.e. if
Total tax MFJ is $200
and
Spouse A if filing a separate return would have paid $50
and
Spouse B if filing a separate return would have paid $200
then

Spouse A tax = 50/250 x 200 - $40
and
Spouse B tax = 200/250 x 200 = $160

Since this method is endorsed by the Treasury Department, perhaps it will be easily accepted as fair in your discussions with your spouse compared with other methods.

You can use TurboTax or the site linked by pb4uski to determine what each spouse's separate tax would have been.

It seems a good number of posters have sidestepped your question and instead have taken the opportunity to describe their own marital arrangements (vis a vis combining of finances), with the thinly veiled implication their arrangements are superior and something you should consider emulating. Ignore such judgments and feel comfortable continuing to do what works for you and your spouse. My spouse and I also keep separate finances. We have our own good reasons for doing so but I wouldn't dream of telling other couples there is something wrong with their arrangements and they should do like we do.

 

[Peter]

It seems a good number of posters have sidestepped your question and instead have taken the opportunity to describe their own marital arrangements (vis a vis combining of finances), with the thinly veiled implication their arrangements are superior and something you should consider emulating. Ignore such judgments and feel comfortable continuing to do what works for you and your spouse. My spouse and I also keep separate finances. We have our reasons for doing so but I wouldn't dream of telling other couples there is something wrong with their arrangements and they should do like we do.

Thank you for this.

 

[Koolau]

I've always been perplexed by couples who keep everything separate. I get the initial hesitation early on, but after you've been married a decade or so, and given the legal treatment of assets in marriage, how can you not trust each other enough to jointly share the load?

When we married my wife was still in school part-time. 15 years later her career was peaking and she made double my salary. To this day her pension/ss is a little more than double mine. When we first retired our only income was her pension. So it wasn't even *possible* to split anything.

I do occasionally think about this, mainly when I get an urge to splurge on something purely discretionary, but since I have my own income I can mentally designate it as me paying for it, but we've always had joint accounts except for her one IRA.

Even though DW often w*rked as many hours as I did, I always brought home (by far) the largest share of the income. She has no pension and her SS is much smaller than mine - she elected to start at 62 and I at 70. It never occurred to us to have separate financial lives. Having said that, I would never be critical of those who choose to do it like OP. I have a saying: I can barely run my own life. I'll not presume to run someone else's. YMMV

 

[Sunset]

Either system can work in a healthy relationship. ...........
We tended to run purchase decisions over $300 or so by each other first but I don't think we ever disagreed. Eventually I added him as a joint user for my credit cards so we could both rack up hotel and airline points.

....
What made it work was that we had the same financial priorities.

+1

Only difference is DW and I keep separate CC's, as that way we each can get the bonus when we churn them.
I do remember my Mom, having some issues after Dad died, because she was always on "his" CC, and didn't have her own.

The most important thing for finances to me is the same financial priorities.