Financial issues unique to same-sex couples

If you are in a same-sex relationship, you know that financial discussions can be particularly confusing. Why? Because we don’t fit into the “typical” heterosexual couple that financial plans have been historically designed for. And while times are changing and many aspects of our financial lives are similar to those of our straight counterparts, some are not the same.

One significant difference is that we recently were given the legal right to marry. Prior to this, many same-sex couples found themselves in limbo. Should we join our finances? When should we make each other beneficiaries to assets? How do we cover each other under our employers’ health insurance? Along with that cherished right to marry came some new financial opportunities that we had not yet dealt with or discussed, leaving some of us wondering what to do after the wedding ceremony.

Another difference for LGBT couples is a concerning one. A recent study by MassMutual found that nearly half of the LGBT population does not feel financially secure. And more than 25% have less than $500 in savings. Whether it is the combination of two same-sex partners earning a combined income less than that of a heterosexual couple or fear of losing a job because of discrimination, LGBT individuals have a lot on their plate when it comes to financial concerns.

If you are part of a same-sex partnership, married or not, read on to learn simple steps you can take to feel more financially confident.

Financial product lag in the LGBT community

In terms of investment and financial product ownership, the LGBT population trails the general population in virtually every category of their financial situation. While the statistics are concerning, it’s helpful to identify where we as individuals, friends and family members can help ourselves and our community with financial health and literacy.

One study by Prudential cited the following for the age 25-70 LGBT and general populations studied:

• In the LGBT group, only 40% held savings accounts, compared with 47% of the general population group
• In the LGBT group, only 35% had employer-sponsored retirement plans, compared with 40% of the general population group
• In the LGBT group, only 18% had individual IRAs (not employer-sponsored), compared with 30% of the general population group
• In the LGBT group, only 42% had life insurance, compared with 54% of the general population group

Same-sex marriage and its legal impact

My same-sex partner and I married four years ago in front of the United States Supreme Court. We had been together for five years already and were thrilled to marry in front of friends and family. Prior to the wedding, we had already intermingled finances, were budgeting as a team and had started estate planning. No matter whether you are in a marriage or committed relationship, knowing that you’ve helped financially protect your loved one is an amazing feeling.

This new availability of marriage for the LGBT community means there is plenty of room for education about the legal implications of marriage, and topics such as taxes, health insurance, retirement benefits, inheritance, and more. Marriage brings with it more than 1,100 federal legal rights and as you might guess, many of those impact the couple’s financial situation.

Taxes and same-sex married couples

Tax strategies are one important area where a new marriage can affect your finances. Whether that effect is negative or positive hinges upon how your earnings and deductions line up. Does one spouse earn significantly more than the other? If that is the case, your combined tax bill might be less. Both high earners? You may pay more after you take your vows due to loss of deductions.

Social Security benefits and same-sex married couples

One of the important federal legal rights gained after marriage is access to one another’s Social Security benefits. This right had previously been abridged by a “place of domicile rule.” This meant that a legally married same-sex couple who lived in a state that did not recognize same-sex marriage would not be recognized as a married couple for the purpose of Social Security benefits. Post-Obergefell, the place of domicile rule is effectively moot and Social Security benefits should now be available to same-sex couples.  Check out the Social Security Administration’s online tools for an estimate on how much these benefits might be worth to you and your spouse.

Health care insurance and same-sex married couples

Healthcare costs are on everyone’s minds these days — gay or straight. Most health plans limit spousal coverage exactly as the name states: you’re only covered if you are the legal spouse of the participant. With the ability to legally marry, same-sex couples can now take advantage of the ability to cover their partners on their health insurance policies and to choose which employer offers the best value for families.

Retirement benefits and same-sex married couples

Retirement plans are another area where spousal status matters. While some private employer plans and federal government retirement plans had already changed their provisions to recognize same-sex marriages due to earlier regulations and decisions, Obergefell requires state and local government retirement plans to also recognize same-sex marriages. If you’re in a same-sex marriage and you aren’t sure whether your retirement plan legally recognizes your spouse, talk to your human resources representative and ensure your rights are recognized. While most plans have taken the necessary steps, if you are a participant in a state public pension plan or a union-sponsored multi-employer pension plan, your plan may not yet have revised its policies as required. A quick call on your part will make sure you are getting the benefits you and your spouse are entitled to.

Estate planning for same-sex couples

Whether you are married or not, if you are in a committed same-sex relationship, estate planning is important. Prior to the Obergefell ruling that recognized that marriage is fundamental right across the country, my partner and I took steps to ensure that our wishes, in terms of healthcare decisions and assets disposition in the event one of us passed away, were laid out on our terms. We were able to ensure this with our estate planning. Take a look below at some of the components of a solid estate plan.

If you have assets, consider having a will

Having a will is critical if you want to ensure that it is you who decides where your assets go in the event of your death. You’ve worked long and hard for what you’ve got. Don’t let those important decisions end up being made by default. If you do not yet have a will, check into options for getting one. You can consult with an attorney (your state bar association will be able to provide referrals) or use an online service if your estate will be relatively streamlined. No matter which route you take, don’t neglect this important tool.

Why life insurance can be a key part of your estate planning strategy

Life insurance can be a critical piece of estate planning. A life insurance policy provides a payout (called a death benefit) to the person (or people) you designate as your beneficiary, so long as you make your premium payments on time and your policy is in force at the time of your death. Life insurance allows you to make funds available to your loved ones to do things like pay a mortgage, replace your income, help send your kids to college, or pay burial expenses after you pass away.

Your life insurance policy is your partner’s safety net. Calculate your needs here.

The healthcare power of attorney is an important component

While a standard power of attorney has broad-ranging discretion, you might want to consider a separate document to allow your partner to step in to make healthcare-related decisions. Again, consult with an attorney or review online resources to make sure you have this critical piece of your estate plan locked down.

Love is love and financial planning is financial planning

All couples (gay or straight) deserve to have financial security. Same-sex couples do face unique challenges in this area and, as noted, deal with a higher level of financial insecurity than that in the general population. Fortunately, with education and a game plan, it is possible to increase your confidence in the steps you’ve taken toward financial security.

Lots of same-sex couples choose to remain unmarried (just as heterosexual couples). Financial issues should be a topic of conversation for unmarried couples as well.

Show your partner how much you love him or her by scheduling a “business date.” Have a nice dinner and talk through areas in your financial lives that could use some attention.

With the Obergefell decision, many new rights have been recognized for same-sex couples who choose to marry. These rights are important components in a couple’s financial plans. Again, the tried and true formula of education and a game plan can help newly married same-sex couples work on their finances and ensure that they have taken the available steps to take care of one another both now and in the future.

For me, being able to marry my partner was one of the most important days of my life. Having financial plans in place to increase our financial security? That is the icing on the cake.

Rachel Parisi is a freelance writer and attorney. She focuses her writing on insurance, financial services, and employee benefits. In her previous life, she served in the United States Air Force as a missile combat crew commander (think ‘Wargames’).

The information provided is not written or intended as specific tax or legal advice. Haven Life Insurance Agency does not provide tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.