Financial Planning Issues for Same-Sex Couples

Navigating one’s financial life can be very stressful and complex. Many individuals in this country struggle to figure out if they are saving enough for retirement, investing those savings the proper way and if they will have enough to retire on their terms.

Now imagine trying to figure all of this out when several of the laws in the country and various states that pertain to the majority of this nation’s citizens do not apply to those in a same-sex relationship. The equation to solving one’s financial life can go from stressful and complex to downright oppressive and convoluted. But, this additional layer of complexity should not be an excuse to avoid planning for your future.

same-sex-financial-planning

If you want to take more control of your financial life, the best thing that you can possibly do is educate yourself! Knowledge is power! One of the first steps of solving a problem is to clearly identify what the actual problem is and then work on a strategy to solve or overcome that specific issue. Below you will find some of the most common planning issues that same-sex couples face.

 

Social Security Retirement Benefits

Heterosexual couples are eligible to receive a “spousal benefit” of up to 50% of their spouse’s benefit amount. Even if one of the individuals never paid a penny into the system, they would still qualify under this rule to receive social security retirement benefits. Also, if one spouse is collecting a greater amount than the other and that spouse dies, the surviving spouse will start receiving a payment equal to what the deceased spouse was receiving. Same-sex couples do not qualify for either of these benefits.

 

IRA Rollover

Under spousal IRA rules, if one spouse dies the other can roll the deceased spouse’s retirement account into their own and delay distributions until they are 70½. In a same-sex marriage, if the spouse was the beneficiary they would need to follow the inherited IRA rules rather than the spousal IRA rules which ultimately means that he or she would have to start taking distributions in the year following death. This may not sound all that bad, but can cause significant tax issues in certain situations.

 

Income Taxes

If same-sex marriage is legal in your home state then you are able to file a joint return on the state level. On the federal level, same-sex marriage is not allowed so returns have to be filed individually. This makes the already complex task of filing a tax return more burdensome and expensive when dealing with laws that differ on the state and federal levels.

 

Estate Taxes

Heterosexual couples are able to take advantage of the unlimited marital deduction for gift and estate taxes, same-sex couples cannot. The marital deduction allows one spouse to pass assets to their spouse tax-free during life and at death. This disparity alone can result in a very significant difference in the amount of assets that pass on to the heirs of an individual in a same-sex relationship versus a married, heterosexual couple.

The bottom line is that one should try to take control of the situation at hand and learn about the local, state and federal laws that pertain to same-sex couples and financial planning. If you don’t have the time or ambition to learn on your own, you should consider working with an advisor who knows these laws inside and out. Depending on where you live, there may be specific state or even local county laws that you can leverage to your advantage. The federal laws may change at some point in the future, possibly very soon, but until then, you need to create a financial plan to navigate the law as it currently stands in order to prepare for the financial future you and your spouse envision.

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Karl Schwartz
Karl Schwartz

CPA, CFP® | Senior Financial Advisor

Karl Schwartz, CPA, CFP®, is a Principal and Senior Financial Advisor with Hewins Financial Advisors in Miami, FL, and in Media, PA. Karl serves on Hewins' Financial Planning Committee and specializes in comprehensive financial planning and investment management for high-net-worth individuals and families. He also focuses on planning matters related to same-sex couples and healthcare professionals and practices.

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Financial Planning Issues for Same-Sex Couples

time to read: 3 min