The Defense of Marriage Act stated that whenever a federal law used the term “spouse,” it meant a person of the opposite sex who was a husband or wife. In similar fashion, the term “marriage” meant a legal union between one man and one woman. 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 are now available to same-sex married couples nationwide.
The new Supreme Court ruling opens up many financial benefits for married same-sex couples.
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 recent 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.
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.
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.
Life Insurance and Estate Planning
Not only do gay and lesbian 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.
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.
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.
If you are in a same-sex relationship and plan on getting married or are already married, it may be imperative to work with a financial planner to review your finances and make sure everything is set up appropriately. With the recent rulings, your finances could see some significant changes. All the new legislative affects could be confusing and an experience financial planner can help.
Make sure your loved ones are financially protected in case of your premature death. Quotacy can help you get the best life insurance policy for your specific situation. Term life insurance is affordable, and we know you value your privacy. 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. Put us to work for you.
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