What are the Financial Advantages and Disadvantages for Gay Couples Getting Married?
When the Supreme Court decided Obergefell in 2015 and ruled that same-sex marriage was the law of the land, it opened the door for gay couples to say “I do.” But along with navigating marriage licenses, guest lists, and vendors, same-sex couples may want to put serious thought into the financial effects of marriage.
The most significant financial issues for couples considering marriage are the same for everyone – healthcare, taxes, estate planning, and retirement.
For healthcare, married partners that have separate healthcare plans can take stock of coverage, premium, deductibles, and other terms of their plans to decide whether one or the other works best for both partners. Some businesses already extend healthcare benefits to domestic partners, but for others, legal marriage is required. For more complicated healthcare plans involving health savings accounts or joint health savings accounts, marriage can extend financial and tax benefits to a partner.
Tax benefits are not so cut-and-dried. Applicable tax exclusions may no longer be available to a married individual, especially if one partner makes significantly more than the other. A combined income can put both spouses into a higher tax bracket. Tax planning may change for more complicated subjects, such as retirement deductions, investment property, or IRA deductions.
As to homeownership, there can be tax consequences in terms of gifting if spouses own the house with a joint tenancy and rights of survivorship, if one spouse puts more money into paying for the house than the other.
Estate planning is made easier by marriage, especially as related to medical decisions. For gay couples who decide marriage isn’t for them, legal documents can fill the gap. A healthcare proxy, medical power of attorney, or an advanced medical directive can provide the same or similar rights as simply being married, so long as they are drafted, certified, and available when needed. Similarly, a power of attorney can cover healthcare and financial decisions in one documents in case of incapacitation.
As to retirement, pensions and Social Security benefits can transfer to a surviving spouse when a partner would be blocked from access to them. Gifting limits are lifted for married spouses, so if you choose to get married an unlimited amount of money can pass from spouse to spouse without tax consequences or other limitations. IRAs and 401(k)s can move from one spouse to another at death with less or no taxes. The normal procedure for retirement accounts when the account holder passes is for the IRS to start taxing that money as soon as beneficiaries withdraw the money. For a spouse, the money can keep growing tax-deferred even if the spouse takes a distribution from it.
These are complex issues, and if you’re considering whether marriage is the right move for you and your partner, consider talking to an experienced estate planning attorney. A quick consultation can save you significant headaches and costs down the line.
Reference: WTOP (May 30, 2018) “Gay and Getting Married? Financial Advantages and Disadvantages”