Financial Planning for Same-Sex Couples
LGBTQ individuals in the United States have more rights than ever before, but they still face unique financial and legal challenges. When same-sex couples think about money, they should carefully consider their marital status and family structure. These factors can have a major impact on their financial future, including retirement. Same-sex couples often have more financial and legal hurdles than their heterosexual counterparts, especially when it comes to the financial implication of marriage, family planning and children.
In June 2015, the U.S. Supreme Court ruled in favor of same-sex marriage, and now roughly 10% of LGBTQ Americans are married (Gallup). Around 60% of cohabitating same-sex couples are married (Gallup). The Supreme Court ruling was a historic victory for LGBTQ rights and for those who want to get married.
From a financial perspective, marriage makes sense for some LGBTQ couples but not for others. Some couples who have cohabitated for many years opt not to get married for practical reasons, while others determine that marriage is the right path for their situation.
Before any couple says, “I do,” they should weigh the economic advantages versus the potential pitfalls of marriage. First and foremost, they need to be totally candid and transparent with one another when it comes to money. Each partner should evaluate the status of their own finances and then come together to talk about their financial goals and spending habits. This helps ensure both partners are on the same page prior to merging their lives legally, spiritually and financially. No one wants to find a financial skeleton in their partner’s closet years after they tied the knot.
The second step is to speak with a tax advisor. Taxes are certainly not the most romantic aspect of marriage, but they are worth discussing. Legally married couples are eligible to file joint federal tax returns and may even want to amend previous years’ returns. Moreover, they are eligible for capital-gains treatment accorded to the sale of a home. On the other hand, they may be subject to the “marriage penalty,” as dual-income couples might jump into higher tax brackets and start paying higher rates faster.
When it comes to Social Security, LGBTQ couples who are married are now eligible for certain spousal and survivor benefits, which can have an advantageous impact on their retirement funds. If two people want to marry later in life and are approaching retirement age, a critical consideration is the difference in income between the two earners over the course of their careers. The spouse earning less may have the advantage of collecting a higher Social Security benefit.
There are more options than ever for LGBTQ couples looking to create a family, but the endeavor can be legally complex and potentially financially draining. If same-sex couples want to start families—through surrogacy, artificial insemination or adoption—they need to become well-acquainted with the family and adoption laws of their home state.
Despite the red tape and high cost, many advise LGBTQ couples to pursue second-parent adoption, where possible. This is a legal procedure that allows a same-sex parent, regardless of whether they are legally married to the other parent, to adopt her or his partner's biological or adoptive child without terminating the first parent's parental rights. Doing so protects the rights of the nonbiological parent if the biological parent passes away, if the couple gets divorced or when the family travels.
States that allow second-parent adoptions by unmarried same-sex couples in some counties include Alaska, Delaware, Florida, Georgia, Hawaii, Iowa, Louisiana, Maryland, Minnesota, Oregon, Rhode Island, Texas, Washington and West Virginia. It’s important to remember that even if second-parent adoption is permitted in your home state, it may not be recognized in a neighboring state. For readers of Q Mid-Atlantic, note that while it’s Maryland, it’s not in Virginia or Washington, D.C.
For some LGBTQ couples, adopting a child is the only option for creating their families. However, the high cost can have an impact on long-term wealth accumulation. Legal fees, agency costs and other expenses can balloon to tens of thousands of dollars before the child can even be brought home. Then there are the economic challenges of raising a child, including buying a larger home and planning for the child’s education, welfare and happiness.
LGBTQ Americans have more rights than ever before, but they still face greater financial and legal challenges when it comes to major life events like marriage and raising children. No matter how same-sex couples choose to create their families, planning ahead as much as possible is the key to long-term financial stability and a secure retirement.