After gay marriage ruling, what financial steps should couples take?
The Supreme Court鈥檚 ruling on the rights of same-sex couples to marry carries important ramifications for the聽聽around the country. How it affects a specific couple鈥檚 financial situation, however, depends on your current civil status and where you live.
Couples living in states that already recognized gay marriage might not see much direct impact. The big changes will come for the thousands of couples living in states that previously did not recognize gay marriage. Those states are Arkansas, Georgia, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee and Texas. (In addition, conflicting court decisions had left the status of gay marriage in Alabama up in the air before the Supreme Court ruling.)
If a couple in any of these states is unmarried and considering marriage,聽they would be wise to take the time to analyze the聽, rather than rush to the altar, as we saw happen in California in 2013, when same-sex marriage became legal there.
From a purely financial perspective, marriage has some 鈥渃ons,鈥� particularly in the short term. These include potential changes in tax liabilities, 鈥渕arriage penalties,鈥� debt issues, community property considerations and potential reductions in financial aid for education. That said, there is also a vast expansion of 鈥減ros鈥� that, depending on a couple鈥檚 situation, may greatly outweigh the cons. These include benefits in estate planning, gift transfers, retirement, health care, Social Security, Medicare, immigration, and homeownership, among others.
If a couple is in a legally recognized domestic partnership or civil union,聽they need to watch the news to see how their state responds to the Supreme Court鈥檚 ruling. Some states, such as Washington, have required couples in legal domestic partnerships to either marry or opt out once gay couples gained the right to marry. Others, such as California, have continued to allow couples to choose either marriage or domestic partnership.
Whether to remain in a domestic partnership/civil union or get married can be a complicated discussion. In some cases, there are benefits to domestic partnership over marriage, while in others, the benefits of marriage greatly outweigh the domestic partner designation. Again, it will depend on a couple鈥檚 individual financial situation, their long-term goals and the state they live in. Further research or professional consultation is recommended.
If a couple is already married but was living in a previous non-recognition state,聽the biggest change they should see is in their tax filings. They will need to聽聽on both their federal and state tax returns (if they have a state income tax where they live). In the short term, they may need to adjust their tax withholdings and/or estimated tax payments to make sure they haven鈥檛 underpaid, particularly if they are in the higher income brackets and both spouses are working.
In the medium term, reviewing retirement beneficiary designations is important, since marriage invalidates prior beneficiary designations on federally administered retirement plans like 401(k) accounts. Checking with their employer鈥檚 benefits department about聽should also be on their medium-term to-do list. In some cases, people in non-recognition states have been getting taxed on health care benefits when provided through their same-sex spouse鈥檚 employer. This should be phased out eventually nationwide.
In the longer term, reviewing titling of real estate and investment accounts and updating estate plans to capture all of the expanded benefits are recommended.
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