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Same-Sex Couples and Marriage: Financial Planning Implications


Same-Sex Couples and Marriage:  Financial Planning Implications

Johanna Schulman, MBA, ChFC, CFP™ is a Financial Advisor with American Express Financial Advisors based in Cambridge, Massachusetts and can be reached at Johanna.X.Schulman@aexp.com   One of her specialties is comprehensive financial planning for gay and lesbian individuals and couples.

Johanna Schulman has a website that can be found at http://gayfinancialadvisors.com/Massachusetts.htm

  The headlines have been filled recently with the ongoing debate over the legality and recognition of same-sex marriages. In the U.S., the battle in the courts and at the local, state and federal levels over same-sex marriage rights is likely to continue for some time.  The financial planning implications of same-sex marriage are as complex as the issue itself.  Couples need to understand everything from the tax ramifications to the emotional consequences of making this important decision.  Financial planning professionals can add value by providing information, support and a comprehensive planning perspective as they work with gay and lesbian couples.

Same-sex couples are at a financial disadvantage.  The following are some of the “penalties” they could be facing without the benefits of legal civil marriage.

Fewer Job Benefits

Companies subsidize benefits for employees’ spouses and kids.  Unmarried workers are not compensated in another form to make up the difference.  Furthermore, benefits for spouses are tax-free.  On the other hand, for domestic partners, benefits are taxed, if they even exist.

Higher Unemployment but Lower Social Security and Unemployment Benefits

Unemployment for unmarried people with children under 18 was 9.1% in 2002.  It was only 3.8% for married workers with kids.  Many married people can collect unemployment benefits if they quit their job to move in with a relocated spouse, but domestic partners can’t.

Everyone pays taxes, but surviving spouses can collect half of a deceased worker’s benefits, whereas domestic partners cannot collect anything.  Social Security benefits, which in some cases can be tapped by a surviving spouse, are essentially untouchable by a surviving domestic partner.

Higher Taxes, No Estate-Tax Breaks and Transfer Taxes

Unmarried partners can’t file joint returns, and receive smaller capital-gains breaks when they sell their homes. Married people can leave spouses everything, tax-free.  But estates of unmarried couples worth more than $1.5 million are taxed at 18% to 48%. Furthermore, transfers of property to a spouse are not taxable, while transfers to domestic partners are.

Fewer Family Discounts

Most country clubs, health clubs and auto clubs allow a spouse to join free or to take advantage of a discount.  Unmarried partners must pay for two memberships and cannot use family discounts. 

No Victim’s Rights Protection or Marital Status Redlining

If a drunk driver kills a married person, the surviving spouse can sue for wrongful death.  Unmarried surviving partners have no legal recourse whatsoever.

In addition, many insurance companies generally put married drivers into a low-risk category and unmarried drivers in a high-risk category.

Credit and Housing Discrimination

Unmarried joint applicants are sometimes offered credit on less favorable terms than their married counterparts. Many states do not ban marital status discrimination in rental housing, allowing landlords to refuse to rent to unmarried tenants.

Lack of Citizenship Rights

Fifteen countries recognize same-sex couples for immigration.  However, U.S. citizens in relationships with same-sex foreigners cannot sponsor their partners.


Unavailable Rights

Other rights not available to unmarried couples include the right to roll-over one’s spouse’s IRA or 401(k) plan, the right to take advantage of joint & survivor annuity benefits, as well as access to an orderly and equitable legal system in the event of divorce.

Financial Implications

As of May 17, 2004, same-sex couples in Massachusetts have had the right to civil marriage.  As more and more same-sex couples take advantage of this, it will be increasingly important that they work with their advisors to address the many financial planning implications of this decision.

Personal financial planning is multi-faceted and includes establishing-cash reserves, as well as insurance planning, income tax planning, retirement planning, investment planning, estate planning, and employee benefits planning.  Each financial decision an individual makes can potentially affect every other aspect of his or her financial life.  The role of the CPA, accountant, attorney, tax advisor, financial advisor or Certified Financial Planner™ practitioner is to try and help couples anticipate and understand the change that marriage will have in their financial lives.

Tax Considerations

At the very least, tax filing will become more complex.  Same-sex marriage is not currently a recognized status at the federal level or by the IRS.  

It is important that married same-sex couples keep good tax records.  Any tax-related decision should be discussed with a qualified tax professional who is familiar with the unique considerations facing same-sex couples.

Joining Finances

Unlike legally married couples, same-sex partners don’t inherit a default set of assumptions about their financial affairs when they enter into a committed relationship.  Many couples have forged their own brand of financial interdependence, whether through joint finances, entirely separate finances, or some combination thereof.  The majority of same-sex couples tend to favor joint finances.

In fact, in the late 90’s, American Express Financial Advisors conducted research on this very issue, and found about 80% of same-sex couples pattern their financial relationship on the traditional marriage model. In such relationships assets are owned jointly, income is pooled, and expenses are treated as joint obligations.

The advantage to this structure is that it has a very comfortable feel to it – for most people, it’s the model they were familiar with growing up, so it seems the natural way for a household to manage its finances. The drawback of this approach is that as long as the relationship does not enjoy any of the legal benefits that come from marriage, it does not enjoy any of the protections inherent to a legal divorce. Without a domestic partnership agreement in place to spell out how joint finances should be unwound; challenging issues must be addressed under extremely draining circumstances. Similarly, without a solid estate plan and supporting legal documents such as wills in place, the marriage model can pose drastic and sometimes unexpected hardships for the survivor if one partner dies.

Even with the advent of marriage rights, many advisors who work with same-sex couples still recommend putting these extra plans in place.  Marriage rights for same-sex couples are still uncertain, and a protective stance is likely to be the most prudent.

A Combined Approach

Increasingly, same-sex couples want to understand the approaches available to them in handling their personal economies, and in making intelligent and informed choices about what’s best for them.  Some couples take a proportional approach to structuring their personal economy. Under this model, joint assets and joint expenses are managed in proportion to each partner’s relative contribution. Thus, for example, if one partner has an income of $100,000 and the other earns $50,000, they would divide things two-thirds/one-third. Or, perhaps partners have contributed unequally to the down-payment or monthly payments on a house; in that case, they might agree that ownership interests in the property should reflect these proportional contributions. Again, arrangements like these always should be spelled out in a properly drafted domestic partnership agreement and acknowledged in the terms of a will or trust.  Note that there can be adverse tax and other consequences if these types of arrangements aren’t drafted carefully, so couples should be advised to first consult with an attorney or tax advisor, as well as a financial advisor.

Going Solo

Finally, some couples prefer to maintain an independent approach to their money.  Joint expenses can be shared either evenly or proportionally to income. Often, people who adopt this approach maintain separate bank accounts, and either contribute to a joint account for joint expenses, or simply send two checks, for example, to the mortgage company each month.

The advantage of this approach is clear: each party retains complete control over his or her own financial affairs, and there are fewer opportunities for messy entanglements in the event the relationship ends. Nevertheless, even couples who opt for the independent approach to joint finances should have domestic partnership agreements and wills or trusts to confirm their intentions with respect to any assets they own jointly.  Newly married same-sex couples who have long maintained financial autonomy may need extra assistance as they explore the financial implications of marriage and the notion of combining finances.

Seek Advice

Same-sex couples have only had the right to marry for a few months in this country.  Many legal and legislative battles lie ahead.  Good record-keeping will assist couples and their advisors in navigating the choppy waters of social change.  Couples will need to enter into marriage mindful of the financial advantages -- and disadvantages -- of such a decision.  One of the best ways to serve same-sex couples who are considering marriage is to understand and respect their relationships, and help them plan their financial lives within the broader context of a comprehensive financial plan.

 Johanna Schulman, MBA, ChFC, CFP™ is a Financial Advisor with American Express Financial Advisors based in Cambridge, Massachusetts and can be reached at Johanna.X.Schulman@aexp.com.  One of her specialties is comprehensive financial planning for gay and lesbian individuals and couples.

Johanna Schulman has a website that can be found at http://gayfinancialadvisors.com/Massachusetts.htm

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This information is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. The views expressed may not be suitable for every situation.