As gay rights expand, so does the need for financial advice

With changes to state and federal laws, LGBT couples are confused about financial strategies

Jun 26, 2014 @ 10:40 am

By Liz Skinner

+ Zoom
(Bloomberg News)

Legal support of equal rights and benefits for same-sex couples has exploded since the landmark Supreme Court ruling a year ago today that found the Defense of Marriage Act to be unconstitutional.

Just yesterday, a federal appeals court struck down Utah's prohibition of marriage between same-sex couples, and a separate federal judge in Indiana ruled that state's gay marriage ban was unconstitutional.

Federal courts in Pennsylvania, Virginia, Texas, Michigan, Oregon and others have all issued decisions since the June 26, 2013, high court ruling that add precedent to equalizing the rights of gay married couples.

With same-sex marriage now legal in 19 states and Washington, D.C., and legislation proposed that would ensure gay spouses are given equal Social Security benefits, gay couples tying the knot have more rights and benefits than ever.

The swiftness of these changes has left many in the lesbian, gay, bisexual and transgender community uncertain about what federal benefits they can now count on, what tax rules apply to them and other legal differences between what Uncle Sam promises and what their state provides. That uncertainty, of course, creates great potential for advisers who can decipher the rules.

“Every legislative action that affects domestic partnerships has the potential to impact the financial situations and investment goals of LGBT investors,” said Katherine Dean, managing director of wealth planning for Wells Fargo Private Bank. “As financial issues become increasingly complex, LGBT investors see the merits of working with financial professionals specifically trained to understand the unique needs of LGBT couples.”

A new Wells Fargo survey shows 83% of LGBT investors don't fully understand how federal and state laws apply to their financial and legal situations, including two-thirds of couples who already are in legal same-sex marriages.

Even though many are confused, only 47% of those in gay marriages or partnerships have reached out for guidance on how the nation's court rulings and laws personally impact them, according to the survey of 875 LGBT investors.

Some advisers said their LGBT clients are surprised by all the ways being part of a legal marriage change things.

“The biggest surprise for people has been in the subject of income taxes, because for many, suddenly putting two incomes together is pushing them into another bracket,” said Jennifer Hatch, president of Christopher Street Financial, a New York-based wealth management firm specializing in same-sex couples. “Nobody regrets it; they get that this is the price that we pay for these other rights we're going to get.”

Clients also often are surprised when she explains the new responsibilities around a spouse's health care and the implications of dissolving a legal marriage. She usually recommends a premarital agreement — a prenup — or even a postnup. But just like with heterosexual clients, most soon-to-be married and newly married couples don't want to even imagine an end to their union.

Most recently married gay couples have not reviewed key aspects of their financial health, the survey found. About 33% of this group have examined their level of emergency savings, 28% have reviewed their written retirement or investment strategies and only 19% have a budget to manage spending.

"As an industry, it's incumbent upon us to provide the kind of information LGBT couples need to make sound decisions so they can achieve their financial goals,” Ms. Dean said.

About 53% of the LGBT investor community said they would value professional help with wills and estate planning, 35% want help with powers of attorney, 35% want guidance with tax issues, 33% want retirement planning expertise and 24% value investment guidance, the survey found.

The survey also showed what type of financial professionals they would look for: 74% say they'd like someone who has other gay clients, 67% seek those specifically trained on the issues same-sex couples face and 52% prefer working with LGBT professionals.

Two lawmakers who are trying to create a level-playing field for gay couples are Sen. Patty Murray, a Washington Democrat, and Rep. Ron Kind, a Wisconsin Democrat. They have each proposed legislation that would ensure same-sex spouses receive Social Security benefits regardless of where they live.

The Obama administration has said it cannot extend those benefits to couples living in states that don't recognize same-sex marriage under current law.

The 19 states allowing same-sex marriage are: California, Connecticut, Delaware, Hawaii, Iowa, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Washington.

A year ago, only 12 states allowed gay couples to be legally married.

In last year's DOMA case, a federal court in New York had ruled that the federal law was unconstitutional for blocking a same-sex couple from claiming the federal marital estate tax deduction. The judge ordered that Edith Windsor be refunded $363,000 taken from the estate of her late female spouse because she wasn't able to claim the marital deduction, even though New York recognized their union.

A majority of the Supreme Court agreed with that ruling, and the expansion of rights for gay couples has been exponential since.

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