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Same-Sex Couples Should Walk, Not Run Down the Aisle

March 9, 2015
Personal Finance
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By Steve Branton

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Supporters of same-sex marriage have scored a string of victories in courts and in voting, and the Supreme Court is considering cases that could make it legal everywhere in the country.

Rather than rush to get married, however, same-sex couples should pause and review the ramifications of marriage from a financial, tax and legal point of view.

Currently, same-sex marriage is allowed in 37 states and the District of Columbia, opening up the benefits of marriage to millions more people. Marriage affords a huge expansion of benefits for couples in areas such as Social Security, Medicare, health care, estate planning and immigration rights.

In other areas, though, the effects can be trickier. Same-sex couples are often marrying later in life, which means they have more assets, higher incomes, blended families and other complex issues. Adding to that, couples who live in states that don’t currently recognize gay marriage have to navigate vast discrepancies between federal and state rules.

All these factors make it even more important that same-sex couples go into marriage with all their financial bases covered.

Here are a few suggestions for same-sex couples to consider before marching down the aisle:

Think income. If you live in one of the states that recognize gay marriage, you can file a joint federal income tax return as well as a joint state return (if state returns are required). If you live in a non-recognition state and are legally married, you can file a joint federal return but must file two single state returns. Income levels are important to consider: A stay-at-home parent and high-income earner may get a “marriage bonus,” in the form of lower taxes, while two high earners could be shocked with a “marriage penalty.” Before marrying, couples should use tax software or consult an accountant to estimate the additional income tax, if any, they will owe once married. While all couples should consider their income and potential marriage penalties before getting married, it’s especially important for same-sex couples, who tend to marry later in life, usually have two incomes and are less likely to have children.

Think about the “D” word. Divorce is not a subject most newlyweds want to think about, but the complications for same-sex couples make it important enough to give it some thought. When it comes to non-recognition states, for instance, some couples who legally marry in one state are unable to divorce in another. Make sure you are married in a state that permits non-resident divorce.

Allow time for a prenup. Prenuptial agreements should be considered when any of the following are present: unequal asset levels, children from prior marriages, future inheritances and concerns about debt and spending issues. And remember not to rush it. Many attorneys want a lead time of three to six months before the wedding to do a prenup, and last-minute prenups are frowned upon. Prenups may be even more useful for same-sex couples than for others because they tend to marry later in life and have often developed separate financial and legal plans to deal with the lack of legal recognition.

Protect your adoption rights. Parenting issues must be carefully weighed before moving to a non-recognition state, as some states actively prohibit second-parent adoption. In these cases, special documents need to be drafted to protect the rights of a non-biological parent.

Deal with debt. Generally, only debt you bring into marriage is considered “yours” alone. Debts accumulated during the marriage belong to both spouses. Problems arise when you add your spouse to a prior account, or if you default on a pre-existing debt. In that case, a joint account could be attached to pay off that debt. Your spouse’s poor debt history will affect future mortgage applications, as both credit histories are usually considered.

Learn about student aid. Both incomes are considered when one spouse is receiving student aid, so getting married could lead to a reduction in the aid that spouse receives. Similarly, a recently married couple could see their child’s financial aid package decrease.

Cover your assets. In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), income and assets acquired after marriage are normally considered equally owned. Separate property — assets that are inherited, gifted or owned before marriage — can create confusion, if the couple’s earned income is later either used to maintain separate property (such as a rental home) or deposited into a separate account. A prenuptial agreement can help define things in advance.

Go on a financial planning “date.” Many couples together for years have already developed budgets for how to manage expenses and savings. Get in the habit of discussing financial issues during regularly scheduled “dates” devoted to the topic. Make sure to cover key areas, such as child-rearing, education and the needs of other dependents, such as aging parents.

Keep an eye on the calendar.  If you marry on December 31, you are considered married for the entire year for tax purposes, so be thoughtful of the timing of your wedding plans. If you would be subject to a marriage penalty, you might want to wait until January.

After marriage, have an estate plan done to take full advantage of all the new benefits, rights and privileges afforded to you. That way, you can walk down the aisle with your mind free of financial worries.