As more same-sex couples wed, it's important that they review their financial plans to understand the financial benefits and impacts of marriage.
Now that same-sex marriage is a legal right in the U.S., LGBT+ couples no longer face many of the unique constraints they once encountered when planning their financial lives together. Indeed, much of the advice for married LGBT+ people is now the same as it is for their straight counterparts. Managing money as a pair is likely nothing new for many same-sex couples. Still, marriage can bring a wholly different financial framework to a relationship that many couples may not have been exposed to before.
“We have the same goals as everyone else, but like many communities that have had to fight for equality, what same-sex couples don't have is a sense that they're entitled to the same resources or knowledge of benefits that were previously unavailable,” says Julia Peloso-Barnes, a Morgan Stanley First Vice President and Wealth Advisor.
Today, as more same-sex couples wed,1 it's important that they review their financial plans to understand the financial benefits and impacts of marriage.
“A lot of the traditional financial planning has focused on male-female relationships, primarily couples who are married with children,” says Christopher Canlas, a Morgan Stanley Senior Vice President and Portfolio Management Director. “LGBT+ couples haven't necessarily known what's available, because it hasn't applied to them.”
Canlas and Peloso-Barnes both recommend reviewing several core areas of your joint financial lives. These include:
- Retirement savings. A Financial Advisor can help you determine how much you'll need to save to sustain your current lifestyle into your retirement. You also want to be aware of what retirement benefits you're legally entitled to as a spouse, Peloso-Barnes says. If you already have retirement accounts, such as 401(k)s or IRAs, then review your beneficiary designations to make sure they reflect your current intention. Take note: If you've named a non-spouse beneficiary on your retirement accounts, you may need written consent from your spouse for it to be valid.
- Family planning and college savings. Same-sex couples planning to have children do face additional expenses, such as paying for a surrogate, which can easily cost more than six figures. Canlas advises his clients to begin saving at least two to three years before they plan to have a child. “For couples that have the means, it's important to create a plan and mechanism for saving that money,” he says. Once kids are in the picture, couples should take advantage of 529 plans, which offer a tax-efficient tool for saving for college.
- Tax considerations. Peloso-Barnes recalls that she recently had a newly married couple who were surprised by the so-called marriage penalty, the tax increase that many couples face once they combine their incomes and file as married filing jointly. She advises that couples assess their joint tax liability and explore ways to reduce their taxable income, such as taking advantage of tax-deferred retirement saving plans.
- Estate plans and gifts. Marriage equality has made estate planning for same-sex couples much easier and provided spouses more benefits. For example, same-sex married couples can pass an unlimited amount of assets to their spouse after death without incurring federal estate taxes. Spouses can also transfer property and assets to each other without having to pay income or gift taxes. Canlas also recommends that couples investigate life insurance options that provide for partners and children in the event of an illness or accident.
- Health care. Partners in same-sex marriages may be eligible for health insurance via their spouse's work plans. In fact, it's a good idea to review each person's workplace benefits to see what's available for spouses. Also consider that your combined incomes may affect your eligibility for certain federal tax credits or health insurance subsidies.
- Social Security benefits. As a married couple, you now gain access to spousal and survivor Social Security benefits that were not available to you in the past. At full retirement age, spouses can receive the benefit to which they’re entitled as a result of their work history or a benefit equaling 50% of their spouse’s full retirement benefit, whichever is greater. Surviving spouses also have a choice. At full retirement age or older, they can receive their own benefit or the same benefit their spouse received, whichever is greater.
Reviewing your joint financial plan can help ensure that you take advantage of the rights and opportunities available to you based on your marital status, Peloso-Barnes says.
“If you're not utilizing professional advice, then there could be ways to improve your financial plan that you don't know about yet,” Canlas says.
Connect with your Morgan Stanley Financial Advisor (or find one in your community) to help you identify your financial goals as a couple and build a customized plan to help you and your partner achieve them. Financial Advisors with the Accredited Domestic Partnership Advisor® designation can provide special insight into benefits that LGBT+ couples may want to know about.