I Do, or I Don’t: The Financial Impact of Marriage for Same-Sex Couples
While the LGBT community has been fighting for marriage equality, marriage doesn’t necessarily help when it comes to a same-sex couple’s financial situation. Married couples may end up losing tax credits or find themselves in a higher tax bracket, making them subject to the not-so-friendly marriage penalty. On the other hand, estate and retirement planning can be simplified for couples who say, “I do.” Before taking the plunge, consider what’s best for you and your partner.
The Benefits of Saying “I Do.”
When the Supreme Court decreed that same-sex marriage must be legal in all 50 states in 2015, many couples rushed to the altar. Other than the emotional benefits of being able to say “I do,” there are also several financial advantages of being legally married.
Married couples can benefit from:
- Tax Filing – Filing jointly could lower your income taxes, especially if one spouse earns much more than the other. It can also be easier to file jointly, which isn’t a bad thing.
- Retirement Plans and Social Security – For legal spouses, it’s simple to roll over 401Ks, IRAs, and other retirement plans when one spouse passes away. When it comes to Social Security, spouses can choose to take their benefit or half of a higher-earning spouse’s benefit when they retire – depending on which one is greater. They can also receive the larger benefit when one spouse passes away.
- Estate Taxes – A married person may leave assets to their spouse without generating federal estate taxes.
- Gift Taxes – Married couples can avoid gift taxes and take advantage of something called “gift splitting,” where they can split a gift’s value 50-50 when passing it on to a third party.
- Health Insurance – If one partner has health insurance through work, a legal spouse can be part of that plan.
- Military Assistance – The military offers many perks to legal spouses – like housing and pension survivor benefits.
- Next-of-kin – While wills and health care proxies are always a good idea, legal spouses enjoy next-of-kin status in the case of an emergency or when assets must be distributed.
The Benefit of Saying “I Don’t.”
While there are many advantages to getting married, there is one big disadvantage that many couples overlook: taxes. Above, we mentioned that some same-sex couples save money when they are finally able to file jointly as a married couple. Unfortunately, many don’t.
If you and your partner earn about the same annually, there’s a good chance that you might not only hit a higher tax bracket when you file jointly, but you may also hit a level where you begin to lose out on tax credits – like the child tax credit. Have your CPA run the numbers to see if you and your partner could suffer any marriage penalties.
It’s a Personal Decision.
Before walking down the aisle, consider what impact it might have on your wallet. Although being legally married offers some considerable advantages, it could also have a significant impact on your financial situation. Consult with your CPA, your financial advisor, and your lawyer before you make any binding decisions – and make sure that “I do” is right for you.
As a Registered Investment Advisor (RIA), Partnership Wealth Management is committed to providing our clients with financial planning and wealth management services to help them make the most of their investments. At Partnership Wealth Management, we have a long history of working with the LGBT community. Among the many services we offer are financial planning and estate planning strategies for gay and lesbian couples. Financial planning is an important part of preparing for the future; contact us today to get started: www.partnershipwm.com.