What are the financial planning ramifications for same-sex couples in the wake of the Supreme Court's landmark decisions?
How will Wednesday’s landmark Supreme Court rulings impact same-sex household finances?
The high court struck down a key part of the 1996 Defense of Marriage Act (DOMA), which had denied federal benefits, including Social Security survivor benefits, immigration rights and family leave, to gay couples who are legally married in their states. The federal government will now recognize same-sex marriages conducted in states where it is legal.
By a 5-4 majority, the Court also declined to consider an appeal brought by defenders of California’s Proposition 8, clearing the way for same-sex marriages to resume in that state, bringing the number of states that allow same-sex marriage to 12 along with the District of Columbia.
One issue married same-sex couples may want to immediately consider is whether they want to refile their taxes as married couples. Prior to the Supreme Court decisions, same-sex partners preparing their taxes could not file using a married filing separately or jointly filing status. Nor could a taxpayer file as head of household if the taxpayer’s only dependent was his or her same-sex partner. “Couples will not be required to refile tax returns, so they should talk to an advisor to see if it makes sense for them,” Nicole Pearl, a private client partner with experience in estate and tax planning for LGBT couples with McDermott Will & Emery, told Financial Advisor magazine. “If couples are not married, they will want to see if it is advisable for them to get married.”
Same-sex couples may also want to revise their estate plans, Pearl added. The estates of heterosexual couples are currently not taxed until both spouses pass, but for a same-sex couple, they are taxed when one dies
Regardless of sexual orientation, estate planning is one of the most important components of personal financial planning. An estate plan can ensure assets are divided in keeping with an investor’s wishes, and can help minimize the amount of taxes due on an estate. Estate planning can also provide for dependent children, direct end-of-life care and award power of attorney should an investor become incapable of managing his or her finances.
In a recent survey of Affluent investors conducted by Spectrem’s Millionaire Corner, the highest percentage of investors (34 percent) responded “estate planning" when asked what issue for which they would most like help from a financial advisor. This is almost twice as much as the second most frequently-cited issue, “Social Security benefits.” (19 percent).
Three will be other financial ramifications of the Supreme Court’s rulings. Couples in the 12 states and the District of Columbia that legally recognize same-sex marriage will gain access to 1,100 federal benefits. On the plus side, they would enjoy the same gift tax benefits afforded heterosexual couples, who face no annual or lifetime limits on gifts or transfers of property of any amount to their spouses. On the downside, they might be hit with the so-called “marriage penalty,” by which couples where spouses earn similar incomes, are most likely to face higher tax bills filing jointly than they would filing as two single people.
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.