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In this podcast I will answer the question: How does financial planning for same sex couples differ from financial planning for traditional couples?
Since Supreme Court struck down the Defense of Marriage Act and the Treasury Department ruled that legally married same-sex couples will be treated as married for federal tax purposes there are only a few differences in financial planning for same sex couples.
The Supreme Court decision affects how couples will be treated in terms of all federal taxes, including income taxes, estate and gift taxes, health insurance, retirement accounts and employee benefits.
Currently (May, 2015) 37 states have legal same sex marriages.
26 by Court Decision
Alabama, Alaska, Arizona, California, Colorado, Connecticut, Florida, Idaho, Indiana (Oct. 6, 2014), Iowa (Apr. 24, 2009), Kansas (Nov. 12, 2014), Massachusetts (May 17, 2004), Montana (Nov. 19, 2014), Nevada, New Jersey (Oct. 21, 2013), New Mexico, North Carolina, Oklahoma, Oregon, Pennsylvania (May 20, 2014), South Carolina, Utah, Virginia, West Virginia, Wisconsin, Wyoming
8 by State Legislature
Delaware, Hawaii, Illinois, Minnesota, New Hampshire, New York, Rhode Island, Vermont
3 by Popular Vote
Maine, Maryland, Washington
Here are a few financial issues for same sex couples.
Adoption
We have same sex couple who are holding off getting married to make it easier to adopt.
In most states, whether gay adoption is legal is made on a case-by-case basis by a judge. However, there are 16 states that clearly allow joint gay adoptions (when a same-sex couple jointly petition for adoption): Arkansas, California, Colorado, Connecticut, D.C., Illinois, Indiana, Iowa, Maine, Massachusetts, Nevada, New Hampshire, New Jersey, New York, Oregon, Vermont, and Washington.
The most restrictive state is Mississippi, where same sex couples cannot legally adopt at all.
Taxes
As with differnet sex couples, when the couples earn a similar amount, taxes are usully higher when they are married. If one person in the marriage makes considerably more than the other, ususally filing married is advantageous.
This may seem obvious, but the question has come up – if you are married at the endo of the year (December 31), you need to file as married. You have the choice of married filing joint or married filing separately – but I have never seen a case where choosing married filing separately is better. I think it is just an option for divorcing couples who can not work together to file jointly.
Social Security
If you live in a state that recognizes same-sex marriage and you married a same-sex partner in a state where same-sex marriages are valid, you can collect Social Security retirement or survivor benefits based on your spouse’s earnings record – just like traditionally married couples.
If same-sex spouses move to a state that doesn’t recognize same-sex marriage, they will not lose their eligibility for spousal benefits as long as they applied for benefits when they still lived in a same-sex recognition state.
In states that do not recognize same-sex marriages, the spousal benefits do not apply.
Like all married couples, same-sex couples need to wait until their full retirement age to get the maximum possible spousal payment, which is 50 percent of the higher earner’s benefit. If you start spousal payments at age 62, your monthly benefit amount is typically reduced to about 32.5 percent of the higher earner’s payments. See our blog and podcast about Social Security.
Estate Planning
For couples in state that do not recognize same-sex marriages, in many ways your partner is a leagal stranger. It is important to have estate plan documents that include a will, health care power of attorney, financial power of attorney and living will (and in some cases a trust).
For all couples, no matter what state you live in, it can be very helpful to have estate planning documents.
These documents can express your desires for:
Guardians for kids
Beneficiaries for your assets
Personal representative (and contingent) to carry out the disires of your will
Healthcare power of attorney (and contingent) who can make healthcare decisions for you if you are not able
Financial power of attorney (and contingent) who can handle financial transactions for you if you are not able
Your end of life desires
Final arrangements
I appreciate any feedback for our AIO Financial blog. Please contact me if you have any comments, questions, and suggestions.