V.L. HARTMANN for the Wall St Journal writes: The 65-year-old man was planning several big changes with his same-sex partner, who was also 65 and already retired.
He wanted to sell his house and relocate to a different city, and to help with the transition his partner intended to claim his Social Security benefits. Once they were settled in a new home, the couple planned to get married.
Although the client was eager to make the move, his adviser, Sean Cauvel, saw compelling reasons for them to adjust their schedule: The Supreme Court's decision that struck down the Defense of Marriage Act in June meant that delaying major financial transactions until after they were married would allow them to take advantage of spousal benefits that could save them thousands of dollars.
"I advised them to hold off on the relocation until after they get married, which they plan to do this fall," says Mr. Cauvel, director of financial planning and senior portfolio manager at Los Angeles-based Westmount Asset Management, which has $1.6 billion under management for 850 clients.
The adviser laid out his case for changing their schedule. For starters, Mr. Cauvel knew that his client had a considerable amount of equity in his house and faced a $470,000 gain on the property. As a single individual, the client was only eligible for a $250,000 exclusion; if he were married, that exclusion would increase to $500,000. Mr. Cauvel crunched the numbers and showed that the couple would save approximately $74,000 in state and federal taxes by selling the house after their marriage.
"That was eye-opening to them," Mr. Cauvel says. "Since they were going to get married anyway, all they'd have to do was wait and that would save them a big chunk on their tax bill."
Mr. Cauvel next explained that they also should wait to get married before claiming any Social Security benefits. After marriage, they could take advantage of the "file and suspend" strategy that husbands and wives have long used to increase the value of their collective Social Security benefits over their lifetimes.
If the client's partner had filed for benefits before they were married, he would have received a maximum monthly benefit of just over $2,500. However, if they waited one year until after they were married and had both reached their full retirement age of 66, the client could file for Social Security and immediately suspend those benefits. But his spouse would be eligible for roughly $1,300 a month in spousal benefits--enough to help cushion their transition to a new city.
An even bigger benefit would come later: If both men defer their benefits after age 66, they can receive an additional 8% per year up to age 70. By doing so, the client and his spouse could each increase their monthly benefits to $3,200 in the future.
Although the client and his partner were eager to start the next phase of their life, they realized that delaying their plans until after their marriage was too big a financial opportunity to pass up. "Showing them the numbers--it was a no brainer," Mr. Cauvel says.
Mr. Cauvel encourages other advisers to be proactive about discussing new financial planning options available to same-sex couples now that DOMA has been struck down.
"They shouldn't make any decisions until they've run it by their advisers, because you may be able to help them save money and increase their benefits in the process," he says.
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