In June of 2013, the Supreme Court ruling on United States v. Windsor overturned Section 3 of the Defense of Marriage Act and allowed same-sex marriages to be recognized at the federal level. Even though legal on a federal level, some states did not pass legislation to allow same-sex marriage.

In Obergefell v. Hodges in June of 2015, the Supreme Court ruled that all states were now required to allow same-sex marriages. As a result of this ruling, all benefits that were available only to opposite-sex couples became available to same-sex married couples nationwide.

Here is a review of the financial benefits now available to same-sex couples.

Healthcare

As a result of being recognized as a spouse, individuals in same-sex marriages may now be eligible for healthcare insurance provided by their spouse’s employer.

Prior to the 2013 Windsor ruling, the value of healthcare benefits provided to a same-sex spouse was considered taxable income to the employee for federal income tax purposes. After the ruling, any same-sex couple that was married in a state that recognized same-sex marriage would then be treated as married for federal tax purposes. After the 2015 Obergefell ruling, every state must recognize same-sex marriage so no matter where they reside, same-sex married couples are now treated as married for both federal and state tax purposes.

The COBRA law also now applies to same-sex married couples. This law provides employees and their families the right to remain temporarily covered under an employer’s health insurance plan at the group rate after termination of employment, provided the individual takes over payment of premiums.

Keep in mind, married couples are ineligible for premium assistance tax credits and cost-sharing subsidiaries under the Affordable Care Act if their combined income exceeds the qualifying threshold. While one may have been qualified as a single individual, marriage may now push one over that income bracket.

Steps to Take

Workplace Benefits: Healthcare

  • Spousal healthcare. Check to see whether you or your spouse can receive better or less expensive healthcare benefits by joining the other’s workplace plan.
  • Tax-favored healthcare accounts. Consider using Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), and Health Savings Accounts (HSAs) for qualified healthcare expenses of a same-sex spouse.

Financial Planning: Healthcare

  • Individual healthcare. If applying for a policy through an exchange because your employer does not offer coverage, and your spouse’s employer does not offer coverage to workers’ spouses, calculate your eligibility for premium tax credits and subsidies based on your combined income.
  • Medicare. If one spouse will not have the minimum of 40 quarters to qualify for coverage at age 65, recognize that Medicare coverage can become available based on the other spouse’s work history.

Retirement Planning

The new rulings affect both types of qualified retirement plans available in the workplace: defined benefit plans, such as pensions, and defined contribution plans, such as 401(k)s.

Same-sex spouses are now covered under the same survivor benefit rules for both plans that apply to opposite-sex spouses. An example of one of these benefits is hardship withdrawals. Some defined contribution plans allow plan participants to take hardship withdrawals from their plans based on financial needs, such as medical or tuition bills or funeral expenses.

Same-sex spouses are also now eligible for Social Security spousal and survivor benefits. Individuals who do not have the minimum work history required for SS benefits on their own may now qualify based on their spouse’s record. In addition, when one spouse in a married couple dies, if that individual was receiving a higher SS benefit, the lower SS benefit drops off and the surviving spouse will continue receiving the higher of the two.

» Learn more: Social Security Benefits 101

Same-sex married couples now have the same benefits in regards to IRAs as opposite-sex couples. Benefits include the ability for a surviving spouse to roll the IRA assets of the deceased into his or her own IRA. This would allow tax-deferred IRA wealth to continue to grow for the surviving spouse’s later retirement years.

Keep in mind, if the retirement plan is covered by ERISA, the participant’s spouse may automatically be the beneficiary, which means that if a same-sex spouse wishes for the benefits to be transferred to a non-spousal beneficiary (such as a child) upon his or her death, he or she must now affirmatively make the election. Also, if a plan participant is married and wishes to take out a loan from his or her retirement plan, the participant’s spouse must generally consent.

Steps to Take

Workplace Benefits: Retirement Plans

  • Defined benefit pension plans. If you participate in a defined benefit pension plan at work, review your beneficiary designation to ensure it reflects your current intention. If you have named a non-spouse beneficiary, your spouse must provide written consent, as non-spouse beneficiary designations done without consent will be deemed invalid.
  • Defined contribution plans (e.g., 401(k)s). Review your beneficiary designation to ensure it reflects your current intention. If you have named a non-spouse beneficiary, your spouse must provide written consent, as non-spouse beneficiary designations done without consent will be deemed invalid.

Financial Planning: Social Security and IRAs

  • Social Security filing status. If you are ready to file for spousal or survivor benefits, look for ways to optimize your benefits as a married couple.
  • Regular IRAs. If you have a regular IRA, consider updating your beneficiary to your spouse, if you have not already done so. If you wish to contribute to a regular IRA, determine whether you can make deductible contributions based on the combined income and workplace retirement plan availability of both spouses.
  • Roth IRAs. If you have a Roth IRA, consider updating your beneficiary to your spouse, if you have not already done so. If you wish to contribute to a Roth IRA, determine whether you can make contributions based on the combined income of both spouses.
  • Spousal IRAs. If you file a joint tax return, consider contributing to a spousal IRA. If neither spouse has a retirement plan at work, contributions will be tax deductible.

When one spouse in a married couple dies, if that individual was receiving a higher Social Security benefit, the lower Social Security benefit drops off and the surviving spouse will continue receiving the higher of the two.

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Life Insurance and Estate Planning

Not only do LGBT workers now have the option of purchasing voluntary life insurance on their spouse through a group policy, but purchasing individual life insurance got easier too. They can now own life insurance on one another without jumping through hoops to prove insurable interest.

» Compare: Term life insurance quotes

No matter which state they reside, same-sex married couples are now able to take advantage of the unlimited estate tax marital deduction at death to pass assets to a surviving spouse without incurring federal estate taxes. Any transfer to their spouse is now no longer considered a taxable gift during life. It also means that a same-sex spouse can transfer any unused federal estate tax exemption at death to the surviving spouse.

Steps to Take

  • Estate and gift planning. When creating an estate plan, consider that same-sex married couples (and both spouses are U.S. citizens) can now use the unlimited estate tax marital deduction to pass assets to a surviving spouse without incurring federal estate taxes. When considering making gifts, recognize that gifts and property can be transferred to each other without paying federal income or gift taxes. Same-sex married couples will now also qualify for gift-splitting, meaning each spouse is treated as giving half the property gifted by the other.
  • Life insurance. Same-sex married couples may wish to revisit their life insurance needs. While estate planning needs may now be deemphasized, life insurance can be used to mitigate the financial risk of lost earnings, fund a spouse’s retirement, or pay for the education of a child.
  • Group life insurance. Consider enrolling your spouse for voluntary group life insurance if your employer makes it available.

For more in-depth information on how the recent law changes affected estate planning for LGBT couples, check out our blog here: Estate Planning for Same-Sex Couples: Protecting Your Future.

» Calculate: Life insurance needs calculator

Tax Planning

Same-sex married couples now can file both federal and state tax returns jointly. Tax rates for married couples are lower than if filing single or filing separately. If one spouse earns a much higher income than the other, filing jointly will average out the total household income which saves tax dollars.

Keep in mind, higher income married couples are more likely to be subject to the “marriage penalty” and filing jointly may push you into this bracket when you weren’t there separately.

Steps to Take

  • Tax planning. Same-sex married couples can/must now file federal tax returns using the “married filing jointly” or “married filing separately” options.
  • Dependent Care Flexible Spending Accounts. If you and your spouse both utilize these pre-tax benefit accounts, recognize that the maximum that can be deposited each year is reduced from $10,000 (for two single individuals) to $5,000 (for a married couple).

The Windsor and Obergefell decisions help level the playing field for same-sex married couples. With so many changes that have taken place, those who are impacted by Windsor and Obergefell may wish to seek the counsel of a financial advisor.

We can help with your life insurance needs. To get a term life insurance quote, there is no need to divulge your name, phone number, or e-mail address. You are free to window shop and research life insurance in peace.  With Quotacy you can apply in your own time, on your own terms.

References:

Financial Planning for LGBT Couples after U.S. v. Windsor and Obergefell v. Hodges, Prudential, James Mahaney, VP of Strategic Initiatives, June 2015

What the Same-Sex Marriage Ruling Means for Insurance Agents, Life Health Pro, July 2015

A Closer Look at Estate Planning for the LGBT Community, MetLife

Health Plans & Benefits, United States Department of Labor

 

Photo credit to: Stanley Dai

 

About the writer

Headshot of Natasha Cornelius, a life insurance writer, for Quotacy, Inc.

Natasha Cornelius

Marketing Content and Social Media Manager

Natasha is a content manager and editor for Quotacy. She has worked in the life insurance industry since 2010, and making life insurance easier to understand with her writing since 2014. When not at work, you can find her throwing a tennis ball for her pit bull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on. Connect with her on LinkedIn.

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