Same Sex Couples’ New Financial Landscape

Carmel Valley San Diego Community | Karen Mendez | US Supreme CourtThe Supreme Court overturned DOMA last summer and for some people their tax, estate planning and retirement planning changed overnight.  For years, same sex, married couples have been excluded from participating in many benefits afforded heterosexual married couples.  The recent change in the law means same sex married couples can now access some of the same financial planning benefits and strategies as other married couples have traditionally.

Here are some of the effects of the changes both gains and difficulties.  If a spouse dies they can pass on their IRA tax free to their surviving spouse who can put that into their own IRA.  This has been the long held policy for traditional married couples but prior to DOMA being overturned, same sex couples could only pass on inherited an inherited IRA to their surviving spouse and the event would be taxable as it would have to be withdrawn immediately.

In the event of divorce now same sex married couples benefit from the tax laws in that that property can be divided “incident to divorce” without tax consequences whereas, previously divorcing same sex couples incurred taxes and sometime penalties when they had to sell some of their retirement accounts in order to divide that property.

Historically, health insurance plans have varied as to whether same sex couples would be covered but one thing known now is that in the wake of the Supreme Court’s decision, when it comes to federal health insurance plans, same sex married couples are covered.

While there are many financial benefits of marriage, ultimately marriage may come down to a financial decision and whether it makes sense for same sex couples.  Regarding taxes, same sex married couples may find themselves with a tax burden rather than a tax benefit compared to when they were not married as the tax benefit may not be greater when they marry.  A variety of factors may cause this including the fact that as an unmarried same sex couple, one partner often itemized deductions for the household, while the other partner took standard deductions.  There are also still a lot of discrepancies across the states as some still have a ban on same sex marriages.  Thus when it comes to filing tax returns same sex spouses while required to file their federal returns as married, if they live in a state with such a ban the couple will be required to file their state income tax returns as singles.

Despite all of the changes on the federal level affecting same sex married couples, social security benefits are still not accessible to this group.  However, the social security administration suggests these couples apply now for benefits that heterosexual married couples now enjoy because it is expected that it is only a matter of time before things are in place for benefits to be paid to same sex couples who qualify and the administration will pay those benefits retroactively based on the filing date.

With all of the new opportunities facing same sex married couples, no doubt there may be a steep learning curve not only facing the couple but also their professional advisors.  As with all financial planning it is best to take a comprehensive, big picture approach, based on the latest information about the law and that all parts of the plan fit together to help accomplish goals.

Carmel Valley San Diego Community | Karen Mendez

Karen helps attorneys; mediators, individuals and couples, navigate through the financial morass of divorce and widowhood. Her expertise lies in understanding the special tax and financial issues that can plague divorce and she helps clients get their financial fair share and equitable settlements. She provides financial analysis, projections and solutions so clients can avoid long-term regret over decisions made early on in divorce and widowhood.  Karen offers a range of financial, investment and insurance services that address clients’ complete financial picture and long-term needs before, during and after marriage.  She is currently writing a book entitled, “To Have and To Hold Onto Your Financial Fair Share: Financial Decision Making When Marriage Ends in Divorce or Death.”

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