Financial Impacts of Same-Sex Marriage

Tuesday, July 21, 2015

By Cassi Teti

In light of the recent Supreme Court decision, Obergefell v. Hodges, ruling that same-sex marriages be granted and recognized at the federal and all state levels, big implications can be taking effect on financial and life insurance services.

Previously, in 2013, the Court ruled same-sex marriages be recognized federally, however, each state was still sovereign in granting whether same-sex marriage be legal in said state. This new ruling, now giving all same-sex couples nationwide the opportunity to marry, is a huge progress for those who were denied certain financial and work place benefits. Same-sex couples who are not yet legally married will receive all the same benefits as hetero-sex couples but they will also incur all the not so glamourous consequences as well. Financial services professionals are encouraged to advise these couples of the pros and cons of marriage from a legal and financial standpoint. Intentions are not to discourage same-sex couple from marriage, but rather to exercise due diligence by presenting both sides of the coin. Below is a list of rights same-sex married couples will be granted.

  • Unlimited marital deduction for Federal (and possibly state) estate tax planning
  • Spousal and survivor benefits for Social Security
  • Married filing jointly status for Federal (and possibly state) income tax planning
  • State spousal property rights during lifetime (e.g. – community property) or after death (e.g. – election of spousal share
  • Spilt joint gift election for Federal gift tax purposes
  • ERISA protection as a spouse under pension plans
  • Other spousal rights under employer-sponsored benefit plans (e.g. – health insurance)
  • Survivorship insurance

One advantage of marrying is the ability to file jointly on income taxes. However, this could be disguised as a benefit because combining incomes can put you into a higher tax bracket. Additionally, if there are children involved, taxes will not be as forgiving filing jointly as it be would filing single and head of household. On the upside, same-sex couples will enjoy the unlimited gift tax between each other, tax free property via survivorship, rollover IRA’s, social  security benefits, as well as health insurance and even visitation and information rights in a hospital setting. Many of these new tax benefits will impact life insurance policies, estate planning, and retirement planning. Your advisor will be able to breakdown the logistics for you.

Same-sex couples should education themselves on the implications of marriage and decide if it fits into their financial plan. It is important to note that these are the same implications for hetero-sex couples as well; therefore it is good practice for all couples to review and align their financials before marriage.