Four Financial Differences in LGBT Relationships

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“A boy is not free to find a partner of his own as long as he must be the partner to his mother.”
–Frank Pittman

With the changing of state laws across the nation, more and more same sex partners are getting married. On June 26, 2013, the Supreme Court struck down the Defense of Marriage Act, which had limited federal benefits to same-sex couples. However, until new statutes are enacted (and upheld), the immediate effects will be limited. For now, the following restrictions are still in place.

  • Social Security survivor benefits are not available. In traditional marriages, spouses can take Social Security based on spousal benefits and also receive survivor benefits. Therefore, widows or widowers can count on a continued stream of income in their financial planning. LGBT couples do not currently have this option; each much qualify based on their own work history. So, LGBT couples should have more assets set aside for retirement to make up for the lack of survivor benefits.
  • Inheritance rules may exclude the LGBT widow/widower. If beneficiaries are not specifically spelled out, the inheritors may be biological family rather than the widow/widower. The best way to prevent this is to specifically name the spouse as a beneficiary and to have a clearly written will.
  • There is no spousal exemption for inheritance taxes in a LGBT couple. Instead, the survivor will receive assets from the deceased as an inheritance, which may trigger estate taxes. Trusts can mitigate some of this issue. It is worth speaking to an estate planning attorney and/or a CPA who specializes in these issues. It may also be worth considering moving to a community property state because of the Internal Revenue Service recognition of community property rights for LGBT couples.
  • Domestic partner benefits, such as health insurance, are usually taxable to the employee. This means that the insurance your partner receives may be treated as taxable income. The couple should evaluate whether having separate coverage is less expensive than receiving the imputed income from the employer.

Because LGBT couples did not get the same legal status as traditional marriage couples, they need to be mindful of the differences so that they do not find unfortunate surprises later. To this end, it is important to create a legal trail of wishes and desires, through the use of wills, powers of attorney, advance medical directives, joint tenancy with rights of survivorship (JTWROS) accounts, and trusts. Their goal should be to plan appropriately to account for the reduced benefits (e.g. Social Security, partner employer benefits taxation) and to avoid probate. Otherwise, they may find out that what they thought was a recognized marriage was only a legal and financial fiction.

Once the law is settled on the subject of LGBT marriage, the rules may reflect an equality with opposite sex marriages, nullifying all of the above. Until then, though, I’d still advise LGBT couples to take these precautions. I’d rather have too many precautions in place than too few. Remember, even though DOMA was struck down, it may yet take a while for the scales of marriage equality to balance; government bureaucracy does not turn in a day.

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Jason Hull was the co-founder of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies. He also was the co-founder of open source search consultancy OpenSource Connections, a premier Solr and ElasticSearch firm. He and his wife FIREd (financial independence retire early) at 46 and 45, respectively. He has a BS from the United States Military Academy at West Point and a MBA from the University of Virginia Darden Graduate School of Business. He held a CFP certification from 2015 - 2021. You can read more about him in the About Page. If you live in Johnson County, Texas or the surrounding areas, he and his wife are cash buyers of Johnson County, Texas houses.

5 thoughts on “Four Financial Differences in LGBT Relationships

  1. These differences are noteworthy. Legal advisers should be updated with these facts as there are LGBT couples that are now in the open and interested in making things legal among them. Financial issues are also a big issue for LGBT couples as there are no legal obligations that would guide them. Thank you for the very informative article!

    1. Thanks for dropping by! Yes, unfortunately, it’s going to be a while until the laws protecting the financial interests of couples catch up to LGBT couples, even if some states recognize the marriage between them.

      1. That’s true, Jason. On the other hand, these couples should be financially smart themselves; even without the law guiding their decisions in life. It might be true that some would go marry but marriage isn’t permanent. There are people who divorce or get annulled.

        1. Word. You’re dead on.

          It drives me up a blue wall when I meet couples where one spouse doesn’t have a clue what’s going on with their finances. Even without a divorce, what happens if the spouse with the knowledge of the finances gets hit by the beer truck? Worlds of trouble. The more both spouses know what’s going on with the money, the more likely they are to have it do what they want it to do for them.

  2. Thank you Jason for covering these very important topics regarding same sex marriages. I am proud of our country today and hope we continue on this path of equality. But as you said, until the laws settle out, same sex couples need to take extra precautions regarding their financial future. Great topic and write-up!

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