Financial Planning for Couples Takes on New Importance

Post marriage equality, it’s time to get your finances in order—and help is at hand.


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On June 26, 2015, the U.S. Supreme Court ruled that states cannot prevent same-sex couples from marrying and must recognize their unions. The widely-hailed decision has significant financial implications for same-sex couples, whether they are already married or contemplating marriage, and these couples should begin planning now to take advantage of the legal and financial benefits opened up by the Court’s decision. This is especially true for older individuals (and couples) who may have accumulated substantial assets over time. 

Same-sex couples who have been together for long periods of time, but have not married, may have designed their estate and retirement accounts on the basis of single ownership.  These couples should review their options, and, if they choose to marry (or if they have been married but living in a state where same-sex marriage has not been recognized) they should undertake a comprehensive financial planning process as legally married couples. 

The numerous issues to consider include property rights, inheritance rights, spousal support, real estate ownership, and tax payments and deductions.  For example, same-sex couples are now subject to the same minimum distribution rules for 401k plans and Individual Retirement Accounts.  They can participate jointly in employee benefit plans such as healthcare, retirement, group life and disability, so they need to study corporate benefit offerings carefully to see which options make the most sense.  They also need to review beneficiary designations to ensure all banking, investment, retirement accounts, and life insurance contracts are in proper order.

Some of the other important financial aspects of the Court’s ruling include: 

  • State taxes and laws. Same-sex couples can now file both state and federal taxes jointly and are entitled to state tax breaks on estate taxes. Same-sex couples may need advice to determine their rights and benefits as they apply to their home state.  Texas, for example, did not recognize same-sex marriage before the Supreme Court decision, and that state’s homestead law holds that, when one spouse dies, the surviving spouse automatically has the right to remain in the house.  That law would not have applied to a same-sex couple living in Texas before the Court’s ruling. 

 

  • Estate planning.  Same-sex spouses now have spousal inheritance rights, regardless of whether intestacy laws apply.  Couples need wills and/or revocable trusts to protect their wishes and to fend off possible challenges by unhappy heirs-at-law.  Assets in a revocable trust pass outside of probate, providing privacy and eliminating probate fees; this may mean more money for loved ones when it is needed. 

 

  • Prenuptial agreements.  Many couples enter into prenuptial agreements, particularly when either or both party enters into marriage with substantial assets.  A prenuptial contract dictates how money and expenses will be managed and divided, and also defines the duties and responsibilities of each spouse to protect their collective wealth.  Same-sex spouses can also divorce and participate in child custody proceedings.

 

  • Health and privacy agreements.  A medical power of attorney agreement is essential in case of incapacitation.   Couples may also need separate powers of attorney over financial affairs such as jointly or separately owned businesses, financial assets and real estate.  Married couples can also enter into a living will, enabling a spouse to provide legal instruction as to the continuation of life support in the event of an incurable illness.

 

HIPPA authorization is another important concern;  under the Health Insurance and Portability and Accountability Act of 1996 (HIPPA), specific authorization must be granted to permit medical personnel to release “protected health care information” and this authorization must be in force to activate health care powers of attorney. 

These are only a few of the legal and financial issues that face same-sex couples.  Others range from funeral and burial planning, to planning for minor children.  If one spouse dies, the surviving spouse can be given the legal right to raise and support a minor, but a drafting attorney must identify the children in all such estate planning documents.  Couples also need to review Social Security, state pensions and other retirement benefits to make sure spousal contract rights are in place. 

Finally, a well-designed investment and asset allocation strategy can help couples establish lifetime security.  Married couples should undertake a comprehensive review of their current portfolios to eliminate duplication and identify areas where assets are too heavily concentrated.  Once the portfolio is properly structured, estate planning can help ensure that assets are properly transferred through the use of marital deductions, the portability of exemptions, and the maximizing of gift and asset transfers to spouses and heirs.  Effective estate planning also minimizes the chances of disputes and disagreements when one spouse passes on. 

The Supreme Court decision is a landmark statement of “equal dignity in the eyes of the law," as Justice Kennedy wrote, but same-sex couples need to be mindful that marriage represents a complex legal and financial relationship.  Couples entering into it should plan carefully and, if necessary, get expert advice on how to protect their assets, minimize their taxes and pass their estates on to their loved ones. 

 

Barry M. Fine is a Vice President and Wealth Planning Strategist for Capital One Wealth and Asset Management.

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