As more states recognize gay marriage, planning traps still await couples

Supreme Court could agree to rule on one of many appeals cases by this summer, and largely clear things up.
JUN 26, 2014
Retirement and other financial planning is still a mine-field for many same-sex couples, especially those living in the 14 states that continue to bar gay couples from wedding. Even as the legalization of same-sex marriages has swept across the United States in the 19 months since the Supreme Court largely proclaimed the Defense of Marriage Act unconstitutional, the state and federal agencies that oversee taxes, employee benefits and Social Security are applying their own rules in providing benefits — and they're not consistent with each other. “There's still a lot of complexity and traps for the unwary,” said Robert Fishbein, vice president and corporate counsel for Prudential Financial, at a Capitol Hill briefing Wednesday. “And it's changing every day.” In fact, a game-changing decision could be initiated as early as Friday. The Supreme Court will decide in the next week or so, possibly Friday, whether to hear arguments in any of the appeals cases that involve same-sex marriage. A Michigan case where two female nurses are fighting that state's ban is thought the most likely to be considered by the high court, Mr. Fishbein said. Adding even more uncertainty, a federal judge on Thursday ruled that Michigan has to recognize the 300 same-sex marriages that were performed in that state on the one day gay marriage was legal last year. The following day a federal appeals court stayed the court decision that had overturned the Michigan ban on same-sex marriage. An ultimate Supreme Court decision that declares the unconstitutionality of state same-sex marriage bans would eliminate much of the complexity in financial planning for same-sex couples and families. Such a decision would not be handed down by the justices before this summer. “A decision could be a global resolution that would give a common approach for taxes, Social Security and other benefits,” Mr. Fishbein said. The justices also could wait to review the cases until their next term, which begins in early October. The court hears oral arguments in about 75 to 80 cases a year, a small portion of the 10,000 petitions it receives each year. Last October, the Supreme Court denied review of all the cases it had been asked to consider that struck down gay marriage bans, thus allowing same-sex marriage in those states and others that are bound by the decisions of those circuit courts. To date, 36 states and Washington, D.C. allow same-sex marriages, and thus residents there have the federal benefits and responsibilities of all married couples. They represent about 70% of the nation's population. The 14 states that still ban same-sex couples from marrying are: Alabama, Arkansas, Georgia, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee and Texas. The biggest challenge in retirement planning today is a result of the Social Security Administration only recognizing marriages among couples who live in a state that allows such unions, regardless of the state the couple may have been married in, said Aaron Tax, director of federal government relations for services and advocacy for GLBT Elders (SAGE). (More: A crash course on Social Security benefits for gay couples) Therefore, couples in those 14 states are not eligible for spousal and survivor benefits from Social Security, and lesbian, gay, bi-sexual and transgender older Americans are among those who need them most, Mr. Tax said. Older LGBT men and women are twice as likely to be single and four times as likely to be childless, compared to the average older American, he said. The Internal Revenue Service and the Department of Treasury, which oversee federal income taxes and individual retirement accounts, have said those in legal same-sex marriages will receive equal treatment as those in heterosexual marriages, no matter which state they live in. However, couples living in the 14 states without gay marriage rights may still have to file state income taxes as single. Couples can also amend previous year federal income tax returns, but before doing so should evaluate whether their salary together will push them into a higher tax bracket and thus result in more taxes being owed, Mr. Fishbein said. The Department of Labor, which enforces most of the nation's retirement plan laws, has said the state in which a couple resides or where the employer is based does not matter; its rules recognize spousal benefits for same-sex couples. It's unclear, however, how such benefits should be handled for transactions that occurred before the June 2013 Supreme Court ruling on DOMA, Mr. Fishbein said. Jodee Winterhof, vice president of policy and political affairs for the Human Rights Campaign, said the nation needs comprehensive legislation from Congress that would “close the gap between what couples have in different states.” She said she's optimistic some portions of a measure could even move during the current Congress, which began a two-year session last week. “The uncertainty is the biggest problem,” Ms. Winterhof said. “People are asking, 'When will this change in my state?' and that's a stress for people as far as what they may be able to do in planning for retirement or death.”

Latest News

Texas man says SEC and fund could make him pay twice
Texas man says SEC and fund could make him pay twice

A $141M judgment and a federal asset freeze collide over one shrinking pool

Osaic executives Kristy Britt and Greg Cornick to leave
Osaic executives Kristy Britt and Greg Cornick to leave

The firm's CFO and EVP of Wealth Management Solutions are the latest executives to exit the broker-dealer.

Estate planning becomes a client retention issue for financial advisors, survey finds
Estate planning becomes a client retention issue for financial advisors, survey finds

Clients are saying they would consider switching advisors if another professional offered estate planning services, according to a new Trust & Will survey.

Candidly adds AI agents for Trump Accounts, workplace benefits
Candidly adds AI agents for Trump Accounts, workplace benefits

CEO Laurel Taylor says the fintech's composable AI stack helps workers optimize dollars across Trump Accounts, 529s, 401(k)s, and other employee benefits.

BMO adds three advisors in Dallas amid Y'all Street wealth boom
BMO adds three advisors in Dallas amid Y'all Street wealth boom

The bank has swiped three private banking veterans from BNY as the city climbs the ranks of America's fastest-growing wealth hubs.

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income

SPONSORED Why direct indexing stopped being optional

Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.