Time for Same-Sex Couples to Revisit Financial Planning

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Time for Gay Couples to Revisit Financial Plans

By Gavin L. DiStasi

Learn more about Gavin on NerdWallet’s Ask an Advisor

When the euphoria wears off a bit from the landmark Supreme Court ruling that legalized same-sex marriage nationwide, it will be time for many couples to take a good, hard look at what the decision means for their financial planning, estate planning and tax planning strategies going forward.

For those living in states that already recognized same-sex marriage, the ruling may not result in recognizable changes right off the bat. But for those in states that previously did not recognize same-sex marriage, or for those who may have been planning to move to another state now or in the future, the court’s decision is likely to be a real game-changer.

Back in 2014, we wrote a piece outlining many of the financial effects that could play out as a result of the Supreme Court’s 2013 ruling striking down the federal Defense of Marriage Act. That ruling left in its wake a patchwork of laws on a wide array of financial issues — tax filing status, beneficiary designations, and gift and estate tax exemptions, just to name a few. How a couple dealt with these issues depended heavily on the state where they lived.

Prior to the most recent Supreme Court ruling, same-sex married couples living in one of the 14 states that did not recognize their marriage were routinely forced to prepare two sets of federal income tax returns. First, they would complete their federal returns as married. Then a couple had to fill out “dummy” returns as two single individuals so they could complete their state tax returns. Additionally, couples in these states could not receive spousal benefits for Social Security, were often denied spousal and survivor benefits for employer-provided retirement and health plans, and often had to deal with potentially major estate-tax implications since they could not inherit all the assets of a deceased spouse tax-free, as “traditionally” married spouses could.

To deal with these different sets of standards, financial advisors, estate planning attorneys and tax professionals had to cobble together elaborate strategies just to execute the most basic planning directives for their same-sex couple clients.

The justices’ ruling should put an end to the need for much of this complicated (and costly) planning work by standardizing laws across all states for all married couples. Married same-sex couples will now be able to take advantage of all the benefits and financial strategies that have been available to opposite-sex couples for years.

As we have seen with major cultural changes in the past, there will undoubtedly be saber-rattling and challenges from the opponents of this ruling, but it is clearly a win for equality, both socially and economically. And while it makes perfect sense that those who have waited so long for this day to arrive might not have tax strategies, financial plans and estate plans foremost on their minds, once the jubilation has worn off a bit, they would be well advised to revisit those plans to make sure they are taking full advantage of the benefits they now enjoy as fully recognized married couples.


Image via iStock.