It’s been nearly three years since the Supreme Court issued its landmark civil rights ruling (Obergefell v. Hodges) that granted same-sex couples the constitutional right to marry. As a result, today close to two-thirds (61%) of same-sex cohabiting couples in the U.S. are legally married,1 ensuring that millions of Americans will now be guaranteed equal rights and protections under the law.
Along with these new legal protections also come a variety of financial benefits – opportunities that were previously unavailable to partners in a civil union. Not only are married same-sex couples now able to file joint tax returns, receive Social Security spousal benefits and qualify for spousal benefits from their husband or wife’s employer, they’re also freed from much of the complex estate planning and healthcare planning work-arounds that were critical prior to marriage equality.
Key financial benefits
Despite the changes in tax rates, brackets and allowable deductions associated with the recently enacted Tax Cuts and Job Acts of 2017, being able to now claim “married filing jointly” or “married filing separately” tax status (as well as qualify for certain tax credits and exclusions) provides same-sex couples with significantly greater flexibility to potentially lower their total income tax liability.
Perhaps more financially impactful, same-sex spouses are eligible to receive spousal and survivor benefits. If you or your spouse should die, the survivor becomes eligible to receive the larger of the two earners’ Social Security benefits. For married couples where there’s a considerable income disparity, this can offer a tremendous opportunity. As a result, higher earning spouses may want to seriously consider delaying their Social Security benefits in order to generate a larger monthly benefit amount that will endure throughout both spouse’s lives. Even in same-sex marriages that end in divorce (if the marriage has endured for ten years or longer), spouses are still eligible to receive full spousal benefits.
On the employment front, married same-sex spouses are also eligible to be covered under their spouse’s workplace medical plan (including the continuation of benefits under COBRA) as well as pension and defined contribution retirement plan survivor benefits. It’s important to note, however, that many employers who previously offered domestic partner benefits are now phasing those programs out. In some instances, same-sex couples may now have to choose between marriage and a loss of benefits.
Same-sex married couples can now make use of the unlimited marital deduction which allows assets to pass tax-free to surviving spouses. This greatly simplifies what was previously an exceedingly difficult estate planning challenge. Along with providing “next-of-kin” status – allowing you to make life and death medical decisions for your husband or wife – legal marriage minimizes the likelihood of a successful probate challenge to your spouse’s estate by his or her family members, and solidifies custodial rights regarding any minor children.
While much has changed to level the financial playing field for same-sex couples, some issues still remain. For instance, while Medicaid allows a healthy spouse to remain in the couple’s home when their husband/wife enters a nursing home and applies for Medicare coverage, the same rules don’t apply for same-sex couples. Instead, the healthy spouse must “buy out” their partner’s ownership share if they wish to remain in the home.
In light of this disparity, same-sex couples may wish to carefully explore their long-term care insurance options. In addition, make sure you take time to review all beneficiary designations on your employee benefits, IRAs, insurance policies and/or annuities to ensure they are up-to-date. And lastly, since excessive life insurance was a common way for same-sex couples in domestic partnerships to offset for the lack of spousal benefits, recently married same-sex couples may want to examine their existing life insurance coverage to ensure it appropriate reflects their current needs.
Certainly, marriage equality has eliminated most of the financial obstacles that dramatically impeded the road to wealth for many same-sex couples. But both challenges and new opportunities exist which make this an ideal time to sit down with your financial advisor to explore all your options and make the appropriate adjustments to your financial plan.
1 Gallup Tracking Data, June 2017