Love and Marriage: Financial Planning for Same-Sex Spouses


Table for a partyFinancial planning issues for same-sex couples continue to evolve, with the Supreme Court expected to rule in June on whether it is Constitutional for states to ban same-sex marriage. Most states recognize same-sex marriage or honor out-of-state same-sex marriages, giving legally married same-sex couples many rights and benefits.

Still, some matters can be complicated if you live in a state that does not allow or recognize same-sex marriage, so it's important to discuss your individual situation with your financial advisor to ensure you understand your rights. Regardless of your situation, you should be aware of important tax, benefit, estate planning and other issues.

Marriage penalty. Married same-sex couples are now required to file federal taxes as a couple–either jointly or separate.  High-earning spouses may face the so-called “marriage penalty,” where the combined tax bill for a married couple filing jointly is higher than it would have been for two single individuals with the same incomes. However, jointly itemized deductions could offset the tax owed for married couples.

Health insurance. Health insurance purchased for your same-sex spouse can be done on a pre-tax basis, which lowers your taxable income. Previously, same-sex couples could only purchase such coverage on an after-tax basis.

Employee benefits. Legally married same-sex couples can participate in employee benefit plans even if the state where they live does not recognize same-sex marriage and health insurance can be purchased with pre-tax dollars.

Retirement planning. Same-sex spouses have equal treatment when it comes to IRAs and qualified retirement plans. In addition to spousal interest in the plan, minimum distribution rules apply. Marriage may also affect how you treat your beneficiary designation forms. If you are a spouse in a same-sex marriage, you should review your beneficiary designations, and how those matters are coordinated with your broader estate planning. Remember that it is your beneficiary designation form and not your will that dictates who receives these assets after you die.

Children. Providing for children requires additional planning. In states that recognize same-sex marriage, both partners are typically granted parental rights. In cases where the partners are not married, or where same-sex marriage is not recognized at the state level, only one partner may be recognized as the child’s parent. In this situation, your estate should include special planning to ensure your wishes for the care and custody of your children are clearly stated.

Gift and estate taxes. Legally married same-sex couples enjoy the same federal gift or estate tax benefits as any married couple. Primarily, those benefits include an unlimited gift or estate tax marital deduction for any amounts passing to a spouse, either as an outright gift or in a trust that qualifies for the unlimited marital deduction. If you’re not married, the current gift or estate tax threshold may apply to asset transfers upon your death. The threshold is $5.43 million in 2015.

"Portability" is another advantage available to married couples, and allows a surviving spouse to elect to use his or her predeceased spouse’s unused estate tax exemption.

Changing Landscape

Treatment for same-sex couples on federal tax, retirement and other financial issues continues to evolve. Be sure you are working with a TIAA-CREF financial advisor, accountant and tax lawyer familiar with this development landscape.

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