Marriage Equality and Financial Planning

Rose & Kim, ready to claim their marriage license

Rose & Kim, ready to claim their marriage license

Two years ago this last week, courts in New Mexico ordered that county clerks must begin issuing marriage licenses to same-sex couples — and the next morning, Kim and Rose were among the first in line at the Santa Fe County clerk’s office. They had been the first named plaintiffs in the case that brought them the right to marry, and which later that same year resulted in a New Mexico Supreme Court ruling declaring same-sex marriage constitutional throughout the state. The political impact of their marriage is hard to overstate in New Mexico. The rest of the country was gradually coming to the same conclusion, and this past summer the US Supreme Court made it perfectly clear: Marriage is a right that must be made available to every couple, regardless of sexual orientation.

For Kim and Rose, the financial aspects of marriage were well understood: Kim is an investment advisor and Rose is an accountant. But not every couple planning a wedding has talked about the financial implications, or set up a conversation with their financial-planning team. Here are just a few issues that every couple should think about before tying the knot.

 

Basic Household Finances:

Every couple (married or not) who decide to share a household face an important initial question: Should we merge our money, or keep it all separate? Basic practical financial questions about cash flow, budgeting, debt management, the possibility of joint ownership of property, and so on, run up against huge emotional issues of trust and solidarity. Some couples find it easy to pool assets, but others don’t; there’s no simple “right way” to address these issues for everyone. But a conversation about these issues, and some agreements about how you’ll handle them, is vital.

 

Employment, Benefits, & Insurance:

A quick word of caution: Most of us find it hard to believe that in 28 states sexual orientation isn’t protected under non- discrimination law, so employees can be “married on Sunday, fired on Monday”. A recent decision by the federal Equal Employment Opportunity Commission (EEOC) links discrimination on the basis of sexual orientation to “sex discrimination”, which is explicitly prohibited by federal law — but this has yet to be tested in court, as it is likely to be. Just another something for you to consider.

That said, there are several ways in which marriage can improve your financial situation through your employee benefits packages. If both spouses work, and have insurance coverage as part of their compensation packages (health, dental, vision, and so on), you should review the benefits and costs of the packages to see if it makes sense to combine coverage. And if you had already combined coverage under a “domestic partner” benefit arrangement, you’ll need to keep an eye out for possible changes. If you’re a business owner, you should consult with your employee benefits manager soon, to make sure that you’re in compliance.

 

Investments:

Your basic investment options don’t change, whether you’re married or not. But the way you title and group your accounts, and the way you invest, might.

Combining previously separate accounts together might mean that you meet portfolio minimums for particular investment strategies, and gathering your portfolios together under a single “household” might allow you to meet asset-based thresholds to lower your management fees. If you had set up mutual trusts, or bought elaborate life-insurance policies on one another, you may be able to unwind those in favor of much simpler spousal arrangements.

And as long as you’re reviewing your investment options, you might want to consider shifting your assets into “Sustainable, Responsible, Impact” (SRI) investments, if you haven’t already. To match your portfolio to your values isn’t all that difficult, doesn’t necessarily introduce extra risk, and doesn’t require that you give up competitive returns (as we’ve discussed before).

 

Retirement Planning:

Since Social Security and Medicare are federal programs, the rules covering those benefits changed in the immediate aftermath of the previous Supreme Court decision on marriage issues, the Windsor case. If you have an existing financial plan from before Windsor that disregarded those programs, or recommended special strategies to handle the disparate treatment of their benefits, you should probably review and revise your plan.

Most workplace-based retirement plans are covered by ERISA and the federal Department of Labor, so the rules regarding them have been uniform since Windsor, too. The IRS set out their accompanying regulations regarding retirement plans in early 2014.

 

Tax Planning:

Speaking of the IRS … It’s not romantic, to be sure, but if you’re both relatively high earners it’s worth talking to a tax professional regarding your marriage plans. For lots of couples, though, it won’t make a significant difference — the so-called “marriage penalty” doesn’t really kick in unless both partners earn more than $80,000 or so.

But there are other questions to ask. Every couple should review their withholding elections, consider opportunities for Roth conversions, and look over the possible implications for federal financial aid for any (nearly) college-age kids. And it may be possible to amend and re-file some of the last few tax returns, in order to recoup some taxes paid — if the costs don’t exceed the benefits, of course.

 

Estate Planning:

Prior to Windsor and Obergefell, estate planning for same-sex couples was somewhat complicated, with a variety of trusts, financial powers of attorney, and elaborate provisions in the wills, all designed to make a partner’s final days a little easier and to reduce the impact of estate taxes. By establishing that “marriage is marriage”, though, these decisions have simplified estate planning significantly for couples who choose marriage. If you are getting / have gotten married, you may be able to unwind some of these structures now; if not, you will probably want to keep them in place.

 

Marriage equality was a long time coming. It wasn’t that long ago that most of us believed it wouldn’t happen within our lifetimes. But, thanks to the efforts of a few with the resources to follow cases through to the Supreme Court, and the excellent lawyers to argue their cases all the way up, any couple that wants to be married now can.

The structures in place now can make financial planning equally complex for all married couples, regardless of the partners’ gender. Not every couple wants, needs, or would really benefit financially from marriage — especially if they’ve already set up some of the alternative legal and financial arrangements that were formerly required. But it’s no longer prohibited by the law, which we think is a great step toward full social equality for all Americans, regardless of who they love.