It's been two years since marriage equality became the law, yet many LGBT couples may still be unaware of spousal financial benefits and rights.
Before the U.S. Supreme Court legalized same sex marriage in 2015, LGBT couples faced unique financial planning challenges and often had to employ creative workarounds to secure rights to benefits and financial parity alongside opposite sex couples.
Two years later, many of these unique planning constraints have been alleviated. Indeed, much of the guidance for married LGBT people is the same as for their straight counterparts. Even so, studies show that many same sex couples lack confidence in their financial planning skills and are less apt to seek professional advice.
“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 Vice President and Wealth Advisor.
Although marriage among LGBT couples is booming in general, a 2016 Prudential survey of nearly 1,400 LGBT people noted that most of the couples married within the past five years had married a long-term partner, or were previously in a legally recognized union. For these couples, managing money as a pair is likely nothing new. Now, there's a wholly different financial framework that many LGBT couples haven't been exposed to before.
There are more than 1,100 places in federal law in which marital status determines rights and responsibilities
“A lot of the traditional financial planning has focused on male-female relationships, primarily couples who are married with children,” says Christopher Canlas, a senior portfolio manager and Financial Advisor with Morgan Stanley. “LGBT couples haven't necessarily known what's available, because it hasn't applied to them.”
That's probably a big part of why LGBT consumers are more likely than the general population to say that they need to gain more knowledge to tackle their financial goals, according to the Prudential survey. This is especially true of LGBT Millennials, who reported in the same study that they don't feel fully prepared because they don't know their options or how to get started with a financial plan.
Canlas and Peloso-Barnes both recommend reviewing a few 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 401Ks 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 savings 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.
“There are more than 1,100 places in federal law in which marital status determines rights and responsibilities” Peloso-Barnes says. Reviewing your joint financial plan can ensure that you take advantage of these rights and take advantage of the available opportunities.
More than 60% of LGBT people have never worked with a Financial Advisor, according to Prudential. “If you're not utilizing professional advice, then there could be ways to improve your financial plan that you don't know about yet,” Morgan Stanley's Canlas says.
When investigating your advice options, look for financial service firms that have high workplace equality rankings from the Human Rights Campaign (HRC). Morgan Stanley has received a full 100% HRC rating for 11 years. Another tip is to prioritize Financial Advisors who have an Accredited Domestic Partnership Advisor designation; they'll have special insight into benefits that LGBT couples may not know about.