Same-Gender Couples Should Review Financial Strategies

“Financial Planning Considerations for Same-Sex Couples after Windsor,” a white paper by Mahaney, vice president of strategic initiatives at Prudential, examines key financial planning considerations for same-gender couples in the wake of the U.S. Supreme Court’s decision in United States v. Windsor that a section in the Defense of Marriage Act (DOMA)–stating the federal government will not recognize same-gender marriages performed in states where it is legal–is unconstitutional (see “DOMA Decision”).

“It’s important for same-sex couples who are already married or contemplating marriage to become aware of the many workplace benefits and financial planning strategies that are now available to them as a result of the Windsor decision,” says Mahaney. “These benefits have the potential to make a significant impact on the financial health of same-sex couples.”

“The spouses in same-sex marriages will now be afforded the same protections as opposite-sex spouses under the Employee Retirement Income Security Act (ERISA),” Mahaney tells PLANSPONSOR.

He adds that ultimately this will affect distribution of Social Security benefits for spouses in same-gender couples. “For now it is only in those states that recognize same-sex marriage, but I think the Justice Department is looking at new policies and procedures with the Social Security Administration,” he says.

The white paper suggests same-gender couples review their financial planning options relating to Social Security, individual retirement accounts (IRAs), taxes and estate planning, and update their beneficiaries for retirement accounts to their spouses. Couples should check to see if they can make deductible contributions to a regular IRA, or whether a Roth IRA or Spousal IRA might now be available. Same-gender married couples should revisit their estate planning, as they now are able to pass assets to a spouse without incurring federal estate taxes via use of the unlimited estate tax marital deduction.

“This decision affects the LGBT community immensely and it has really made a difference in my life,” says Debra Abbott-Walker, a manager of Agency Recruiting for Prudential. “Now I know that if something happens to me or my wife, our children will receive survivor benefits.” According to Abbott-Walker, she and her wife, Jennifer expect to save about $1,500 a year by filing their federal taxes jointly. Like Abbott-Walker and Jennifer, many same-sex married couples paid more in federal taxes prior to the Windsor decision because they were required to file as single, despite their marital status.

The paper points out that the federal recognition of same-gender marriages isn’t all positive from a financial perspective, as some married couples will pay higher federal taxes, while others may see their ability to qualify for a child’s college financial aid reduced.

A link to download “Financial Planning Considerations for Same-Sex Couples after Windsor” is here.