Financial Considerations for Same-Sex Couples Who Want to Marry
Until marriage equality became the law of the land in 2015, generations of same-sex couples never faced the same financial issues as married heterosexual couples. Some high-income-earning same-sex couples have found that getting married can actually portent some potential financial penalties—for example, no longer being able to contribute to a Roth IRA, which can impact individual retirement and financial goals.
Some couples still get married for the benefit of peace of mind in terms of being each other’s legal next of kin and needing to jump through fewer legal hoops in setting up end-of-life decisions and estate planning. But on the financial side, gay and lesbian couples considering marriage face a new set of decisions. Here are just a few:
This is one of the few issues that’s almost always a positive. Employer health insurance plans typically offer full coverage for married couples, so tying the knot with a partner who has a good health care plan can mean major savings.
Your taxes may change drastically after getting married. On the positive side, if one partner doesn’t work outside the home or makes a lot less money, filing jointly as a married couple could lower your tax bill. But a high-earning couple could lose deductions and pay thousands more in taxes. Meeting with an accountant is advised.
People in same-sex marriages can now qualify for Social Security based on their spouse’s income. If half of one spouse’s benefit exceeds the other spouse’s benefit, marriage could be a financial gain. But if one spouse earns a low income earner, marriage could effectively increase the couple’s Social Security taxes. And if one partner is on government disability or welfare, a higher household income induced by marriage could reduce or even end that person’s benefits. Both partners should get clarity on how marriage will affect their benefits. The Social Security website has functionality to allow you to get that clarity.
Gift and Estate Money
Marriage takes the burden of the gift tax off of partners who are generous with each other. Legally married spouses can exchange cash or gifts freely. On the other hand, unmarried couples filing taxes for fiscal year 2018 will be legally bound to pay gift tax on money and gifts exceeding $15,000 per person per year. Although people don’t often get caught for not paying gift tax, it can be a troublesome experience if you do. Also an unmarried partner who leaves a large estate to their partner in a will when they die will compel that partner to pay estate or inheritance taxes, depending on where the couple lives.
Student Financial Aid Needs
The marital status of a same-sex couple can affect the chances of the couple’s child to get financial aid for college. The college-bound child of an unmarried couple is only required to report the legal parent’s income on his or her Free Application for Federal Student Aid form. But if the couple gets married—or if both partners become legal parents regardless of marital status—both parents’ incomes must be reported on the FAFSA. That can potentially put the child at a disadvantage in pursuing financial aid or a need-based award.
The Possibility of a Costly Divorce
None of us likes to think of the worst-case scenarios, especially when we’re planning a phase in life that we enter to increase our happiness. But as we’ve noted before, divorce carries an array of potential financial repercussions that can seem daunting. Issues like property and retirement account division, spousal and child support, credit and financing and estate planning are just the most common.
The Case for Domestic Partnership Instead
Various categories of domestic partnerships are still available to couples who believe that marriage could harm their finances. These categories include those provided by governments (primarily states and cities), plus those offered by some employers nationwide.
Domestic partnership benefits vary depending on where you live and your employment status. Some states offer domestic partners the same rights as married couples, while others relegate DP benefits to those related to estates and hospital visits. Employers generally provide health insurance for same-sex domestic partners, although that’s less common now that same-sex couples can legally marry.
Keep Perspective When Considering Your Next Step
You can get advice from an accountant on most of the financial issues with which you may contend as a same-sex couple considering marriage. If you’re facing any notion of obstruction or discrimination as a same-sex couple, or are interested in legal issues like prenuptial agreements, Lee Tyler Family Law, P.C. can help you inform your decisions and file the requisite paperwork.