July 9, 2015
Financial Bonus of (Same-Sex) Marriage
Two important U.S. Supreme Court decisions in two years removed not only the obstacles to same-sex marriage but also most of the financial inequities couples faced.
The June decision upholding same-sex marriage opened up financial advantages of marriage that either had been completely unavailable to gay and lesbian couples or were complicated by marrying in a different state than the state in which they live. The decision came on the heels of the high court’s 2013 ruling against sections of the federal Defense of Marriage Act, a ruling that made Social Security benefits available to gay and lesbian couples in states that permitted them to marry.
In the wake of these decisions, “If marriage is an option and it makes sense emotionally for the couple, that’s also the best financial strategy,” said Sheryl Garrett, a certified financial planner in Eureka Springs, Arkansas.
There are disadvantages to marrying. Filing joint tax returns can mean higher income taxes or less financial aid for college-bound offspring. Nevertheless, Garrett, co-author of “Money without Matrimony: The Unmarried Couple’s Guide to Financial Security,” said the court rulings together make a compelling argument for marrying.
She provided Squared Away with five financial benefits of same-sex marriage listed below. They’re the same advantages that were always available to heterosexual couples who could produce a marriage license.
- Social Security benefits. Unmarried gay couples often go through contortions to set up trusts and purchase life insurance to ensure that, if they die, an unmarried partner or their non-biological children are taken care of. This is typically their replacement for Social Security’s standard spousal, survivor, and related benefits available to married couples.
Now that same-sex couples in every state can marry, Social Security benefits will become available to more people. In fact, in Massachusetts and other New England states where same-sex marriage has been legal for years, the U.S. Social Security Administration is already “processing some spousal and related benefits for same-sex couples and paying benefits where they’re due,” said Stephen Richardson, the agency’s spokesman in Boston. He encouraged same-sex couples who believe they may be eligible to apply for benefits as soon as possible.
- Unlimited marital transfer. All unmarried couples are subject to federal gift taxes when they transfer real estate, 401(k)s or other valuable assets from one partner to another. Married couples “don’t even have to think about it,” Garrett said, due to a federal provision that permits unlimited transfers between marital partners if both are U.S. citizens; states often have similar rules. Similarly, federal and state inheritance taxes don’t apply when a married spouse dies and leaves assets to a survivor.
- Joint and survivor benefits. Defined-benefit (DB) employer pensions are rapidly disappearing from the U.S. retirement system. But many baby boomers still have these benefits, which, if they die, provide pensions that will carry on for their marital spouses. The Supreme Court Ruling is expected to make DB survivor benefits available to married gay and lesbian couples.
- Health insurance. A majority of Fortune 500 companies offer health insurance to unmarried employees with same-sex partners, but small companies often do not. Many unmarried couples have to purchase a second individual policy if one partner lacks employer health coverage.
A same-sex couple who marries can now switch to an employer’s family plan and will generally pay much less in total premiums, since employer plans have lower administrative costs, less adverse selection, and are typically subsidized by the employer. Now that same-sex marriage is legal, some employers are eliminating benefits for some same-sex partners and returning to a two-tiered system in which employees must declare themselves either married or single.
- Save on financial and tax planning. Unmarried same-sex partners can run up large bills for the complex financial and legal documentation needed in their attempts to replicate married couples’ arrangements. The Supreme Court ruling won’t eliminate all of these complexities. But many same-sex couples will save hundreds of dollars in financial planning and legal fees now that they are on an equal footing with all married couples.
In the wake of the Supreme Court ruling, Garrett said, life “will be a lot simpler” for couples who marry.