The U.S. Supreme Court ruled same-sex couples nationwide could legally wed in June 2015, and gay couples have been getting hitched ever since. A recent WTOP article, “Gay and Getting Married? Financial Advantages and Disadvantages,” reports that a 2017 Gallup poll found 10.2% of gay couples in the U.S. are now legally married.
Financial implications are probably not at the top of the list for gay couples deciding to marry. However, there are several to consider. Some may not be beneficial, but some are. The most significant issues for married gay couples, like married straight couples, should be retirement planning, estate planning and tax planning.
The major benefit for gay couples marrying is the survivor’s Social Security benefits. If you’re lucky enough to have a retirement plan where there is a pension benefit, it can be transferred from spouse to spouse. The other big issue is gifting: spouses can leave an unlimited amount of money between spouses. But if you’re not married, that doesn’t happen.
A major difference in what each partner makes can gum up the works, especially with the IRS. Consider the marriage penalty tax and figure out if you’re better off being married or not being married. You could be subject to not getting some of the tax exclusions that would’ve worked to your advantage, if you weren’t married. This is especially true, if there is a wide variance in income between both partners. You should also think about loss-limit deductions on things such as investment property, IRA and retirement account deductions, and other tax planning situations that can become significant considerations, when one partner earns much more than the other.
When combining the income of the two spouses, it may put them both into a higher tax bracket. This will add more tax liabilities. You should also think about homeownership and retirement. For unmarried gay couples with a big variance in incomes who own their home as joint tenants with right of survivorship, the surviving individual will get the house when the first one passes away. However, there could be some gift consequences, depending on how the money went into paying for the house and who put more money into it versus who didn’t.
There are also retirement accounts to look at. Married couples can pass IRAs or 401(k)s to one another at death, without triggering taxes. If you die with money in your retirement accounts, the IRS starts taxing that money as soon as your beneficiaries withdraw the money. It also forces a withdrawal within a certain amount of time. However, there’s an exception for distributions to spouses, allowing the money to keep growing tax deferred.
You should also analyze health care. Many businesses offer health care coverage to their employees’ domestic partners. Depending on company policy for family coverage, legal marriage ensures it. There’s also a financial benefit for surviving spouses in a health saving account because that money can be transferred to the surviving spouse. Likewise, a married couple in a joint health savings account can contribute more pretax dollars.
All married couples also legally speak for each other in terms of medical decisions. Unmarried couples, either straight or gay, don’t automatically have that legal representation. For gay couples who opt not to marry, that can be solved with a medical power of attorney, an advanced medical directive or health care proxy. These legally binding documents should be drafted, certified and available, in the event of an emergency. A power of attorney can cover both health care and financial decisions, if one unmarried partner becomes incapacitated.
One size most definitely doesn’t fit all gay couples, when it comes to the financial implications of marriage. The best advice for gay couples planning to wed is to get professional advice. Talking to a qualified estate planning attorney isn’t costly, and understanding what to expect before saying “I do” can eliminate some surprises.
Reference: WTOP (May 30, 2018) “Gay and Getting Married? Financial Advantages and Disadvantages”