Published October 5, 2016|6 min read
It’s remarkable how much the legal landscape for same-sex marriage has changed in just a few years. Although the Supreme Court had ruled the Defense of Marriage act unconstitutional in 2013 at the federal level, as recently as early 2015 there were still over a dozen states that refused to legally recognize same-sex marriages. This patchwork legal environment demanded an equally patchwork financial and legal strategy from same-sex couples, married or not, in order to guarantee a level of financial protection similar to what opposite sex couples enjoyed.Then in June 2015, in Obergefell v. Hodges, the Supreme Court made it official: same-sex couples could legally marry no matter where they lived in the U.S.Today, a same-sex couple’s financial strategy is not so different from an opposite-sex couple’s. It’s still something of a patchwork, because every married couple has to stitch together a long-term financial plan from retirement accounts, insurance policies, savings, assets, and investments. But for the first time in U.S. history, same-sex married couples have access to the same tools and strategies as their married straight friends.For many same-sex couples, this marks a new and unfamiliar phase of financial planning, especially if you lived together in an "unofficial" marriage before June 2015. Here are some expert tips from professional financial planners and advisors on how a same-sex married couple can best plan for a long and secure future together.
Lisa Snyder, a Wealth Management Consultant with UBS Financial Services in California, says, "Same-sex spouses should approach retirement planning just as opposite-sex spouses should," and that means executing a three-part strategy:
First, meet with a financial advisor and conduct a thorough analysis of your current financial plan. You’ll need to look at your collected assets, liabilities, and expenses, to see whether your current strategy is adequate to meet your retirement needs.
Next, you should conduct a risk analysis to identify any other possible roadblocks between you and your retirement goals. These can include the death of spouse, a disability, or a chronic illness. "Managing these risks is just as important as managing investment risk," Snyder says.
And finally, you should figure out your wealth transfer needs so that you can make sure anything you leave behind is distributed efficiently and to your wishes.
A good financial advisor can also help you figure out the most effective use of your retirement accounts. Rita Cheng, a certified financial planner (CFP) professional and the CEO of Blue Ocean Global Wealth, says it’s now possible for a non-working spouse to contribute to a working spouse’s IRA, and that a surviving spouse will also be able to roll over a deceased spouse’s IRA funds into his or her own IRA.
"Make a plan for the future" is probably already on the to-do lists of young couples just starting out. But older Americans―especially those who have been married for years―might not realize how much the Obergefell v. Hodges ruling could affect their existing strategies.David Rae, a CFP and vice-president at Trilogy Financial Services, says that while the divide between how straight and LGBT married couples approach financial planning is shrinking, some of his older clients don’t always recognize the opportunities this brings."The main difference I’ve seen is many ‘newly married’ couples may have been together for decades, and this new legal recognition means they may need to change the way they have been doing things to maximize the benefits or their retirement plans, and minimize taxes as a married couple, versus two individuals. I talk to lots of same-sex couples who have run a ‘retirement calculator’ of some kind based on their situation alone, essentially ignoring their spouse’s portion of the plan. Ideally, they should make sure they’re on track as a couple."Mike DiNuzzo, a CFP and Wealth Advisor at DiNuzzo Index Advisors, Inc., agrees. "We often see same-sex clients approaching retirement who have been in a relationship for decades and are now making their bond official due to new law changes," he says. "Sometimes it can be difficult to help these clients understand that they need to approach some aspects of their new marriage just as a couple would in their early 20s. It’s not uncommon for couples who have spent years together to never have seriously had conversations concerning their finances."DiNuzzo suggests these couples should, at the very least, meet with an accountant or tax advisor to explore their new federal tax filing options. Couples with sizeable assets should meet with a financial advisor to understand where and how to adjust their retirement and estate plans.
Now that the IRS treats straight and same-sex marriages equally, there are several ways a same-sex couple can take advantage of this to save money.To start with, Rae says you should take care of the basics: if you’re switching from an individual return to a joint return, review your deductions and withholding to make sure the numbers still work. "No one wants to give the IRS a big loan for free, or worse get blindsided with a big tax bill when filing your taxes."Snyder points out that both the mortgage interest deduction and the home sale gain exclusion are possible sources of tax savings when filing jointly, because in both cases the limits are doubled for married couples.DiNuzzo says couples who co-own a business can also benefit. "One lesser known tax benefit for married same-sex couples who enter into business together is that they can now benefit from creating a ‘family partnership.’ The married couple can divide business income amongst members of the family, potentially resulting in a sizable tax savings."Cheng says that married couples in general enjoy a "greater ability to offset capital gains with capital losses: When a married couple files a joint return, capital losses recognized by one spouse can be used to offset capital gains recognized by the other spouse."
Cheng recommends that you also check with your employers for potential benefits, especially when it comes to health expenses. "Probably the two most common examples are tax-free health coverage and reimbursements from pre-tax Flexible Spending Accounts (FSAs) for health care and dependent care."
For many married couples today, Social Security still makes up a significant part of any retirement strategy, and now same-sex married couples can also include these benefits in their financial planning. For example, Rae points out that same-sex spouses can now take advantage of the popular "file and suspend" strategy, which lets a non-working spouse claim eligible Social Security benefits while the working spouse postpones his or her benefits to build more value.
Typically, estate planning becomes a need once children enter the picture. While this holds true for same-sex couples, it’s also a good idea to put together an airtight estate plan to ensure that your final wishes are followed even if you don’t have kids.If you’re concerned about possible trouble from family members who don’t approve of your marriage, you might consider establishing a revocable living trust, which is a legal document that lets you name a trustee to manage your assets. Snyder explains, "It not only eliminates the time and expense of probate, but also keeps estate assets and administration private. The public proceedings of probate can sometimes give rise to unwanted disputes and claims from disgruntled family members. The trust can help avoid these issues."You should also make sure you account for your state’s inheritance tax, if it has one, Snyder says. Married couples can sometimes defer this tax until the death of the surviving spouse. (At the federal level, you can pass up to $5.25 million in assets to a surviving spouse without a tax penalty.)Kevin Kane, a Florida attorney who regularly advises clients on trust and estate issues, has lots of great tips on how to put together a solid estate plan, from picking the right trustee to making sure your wishes will be followed as you intended.As Snyder puts it, "Everyone has an estate plan. The question is, have you created your own, or are you are relying on the estate plan created for you by your state of residence?"
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