From the Wall St. Journal we read: Voices is an occasional column that allows wealth managers to address issues of interest to the advisory community. Dan Serra is a senior adviser at Freed Advisors in Chevy Chase, Md.
I've been watching the domestic partnership landscape for about two years now. It's been very interesting to keep track of issues facing same-sex couples as they plan for their financial futures, even as laws about same-sex marriage begin to change. Seeing as how we may see a repeal of the Defense of Marriage Act (DOMA) once the Supreme Court makes a decision this month, the adviser community needs to be ready to reach out to these couples.
One of my concerns is that while a repeal of DOMA will be life changing for same-sex couples, they may not know how the rights they are granted will affect their financial goals. Obviously there will be some great benefits to having DOMA repealed. Once same-sex couples are legally recognized as married, they will be able to qualify for spousal retirement and survivor benefits. They will also be able to shift assets between their accounts without being subject to gift tax. Perhaps most significantly they'll be able to plan their estates with fewer potential legal complications than they face now.
Yet there are ways that legal marriage could be detrimental to a same-sex couple's financial life, without some extra planning.
For example, high-net-worth couples could be particularly affected if they choose to marry. A high-net-worth couple may see their taxes rise when they file jointly if their combined income pushes them into a higher tax bracket. For some couples, getting married could mean they potentially lose deductions, exemptions, and could be subject to the higher Alternative Minimum Tax. By filing jointly, they could also potentially fall under the new tax phase-outs that went into effect this year, and it could also negatively affect their retirement plan contribution limits.
Some planning will be necessary to help these couples decide if it's better to manage taxes as a family or to continue to live as domestic partners, filing separately. Same-sex couples can still be a family without being married, so it's important for a couple to decide if getting married is worth taking a hit to their finances.
A lot of same-sex domestic partners currently make financial agreements to cover how they will obtain debt and own property, or care for each other in the event of serious illness or death–or even how they would negotiate a possible separation. But waiting for a ruling on DOMA is not a reason for same-sex couples to put off making such plans now. There is always the chance that something tragic could happen that leaves a couple or an individual financially unprotected. Couples should continue to plan for their futures as they have in the past, because there is still a chance that DOMA won't be repealed. It's easy to revise a financial plan to reflect the changes in the law–and it's always better for a couple to be protected.
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