Financial lives in flux as DOMA decision awaited

Jun 23, 2013 @ 12:01 am

By Liz Skinner

DOMA, gay rights
+ Zoom
((Photo: Bloomberg News))

A Supreme Court decision on same-sex marriage, expected any day now, could improve the financial outlook significantly for couples living in certain states, but many gay partners still will have to work around a system that affords financial benefits mostly to recognized spouses.

If the Defense of Marriage Act is declared unconstitutional, as many legal experts expect, same-sex couples living in the dozen states and District of Columbia that allow them to be married will no longer have to worry about gifting issues that arise when one spouse contributes more to common ex-penses. They also won't have to file separate federal taxes and may save money by filing jointly, said J.T. Hatfield Charles, an adviser with Raymond James Financial Services Inc.

They'll also have access to each other's Social Security benefits and pensions after death, qualify for military spousal benefits and will not have to contemplate buying life insurance to cover the cost of estate taxes when one partner dies, he said.

1,100 FEDERAL BENEFITS

“Couples in the 12 states with same-sex marriage gain access to 1,100 federal benefits, so it would do a tremendous amount for those couples,” said Kyle Young, an adviser with Wells Fargo Advisors. “For those in states that don't recognize gay couples, access to those federal benefits still will not be on the table.”

It's unclear what would happen to a couple's federal rights if they were to move out of a state that recognized gay marriage to one that didn't. Mr. Young has clients for whom this issue has cut into their life plans.

Two of Mr. Young's clients have been together for about 40 years but were married in New York last year after the state made same-sex marriages legal. If the Supreme Court decides to overturn DOMA, their financial picture will immediately brighten by at least $20,000 a year, and whichever partner lives the longest faces more financial security.

However, it makes the retired couple's dream of moving permanently to their Pennsylvania vacation house less appealing, for several reasons.

Pennsylvania requires that marriage be between a man and a woman, so it's unclear whether the two would still qualify for the federal benefits gained from a repeal of DOMA, including inheritance of pension and deferred-compensation plans. The surviving partner also would owe the state 15% of the deceased partner's estate — the same amount he or she would if the two were strangers, Mr. Young said.

TAX COMPLICATIONS

This couple, as well as all same-sex couples who would gain federal benefits, would have to consider certain new tax complications. For example, couples could be hit with the “marriage penalty,” the bane of heterosexual couples. Couples where spouses had similar incomes are the most likely to face higher tax bills filing jointly than they would filing as two single people, accounting experts said.

But more importantly, a reversal of DOMA “would radically change the way that employee benefits are taxed and the way same-sex couples file and think about their planning,” said Todd Solomon, a partner at law firm McDermott Will & Emery LLP, who focuses on employee benefits.

If same-sex spouses were eligible for federal benefits, those benefits provided through a spouse's employer no longer would be taxable, Mr. Solomon said. He added that couples with a state-recognized marriage could consider asking the Internal Revenue Service for these and other taxes to be returned to them as far back as 2010.

“I think there will be very dramatic changes, and people are waiting anxiously for the court's decision,” he said.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Jun 27

Webcast

Emerging Market Debt: 5 Forces at Work

When it comes to emerging market debt, there are a series of forces that help you drive better results for your clients. In today's continually changing market environment, it is critical to know the forces at play to help keep your investment... Learn more

Accepted for 1 CE Credit from the CFP Board. Approved by IMCA for 1 CIMA®/CIMC®/CPWA® CE credit. Approved for 1 CFA Credit.

Featured video

Events

Tech tools of tomorrow: Innovations your firms can't live without in 2020

Gadget Girl hits the tech pavilion at Pershing INSITE to see what exciting new tools advisers can't afford to miss.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Brian Block's $4 million bonus was tied to a key metric at ARCP

Prosecution rests case in fraud trial against CFO of American Realty Capital Properties.

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

Voya's win in 401(k) fee suit involving Financial Engines bodes well for other record keepers

Fidelity, Aon Hewitt and Xerox HR Solutions are currently defending against similar fiduciary-breach claims.

Collective investment trusts getting more attention from 401(k) advisers

The funds are catching on due largely to lower costs and more product availability, but come with some inherent drawbacks.

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print