Big changes coming for gay couples' personal finances
Rainbow flags line the courtyard at San Francisco's City Hall building on June 26, 2012.
This week, a major case before the Supreme Court captured our attention. It's the case of 83-year-old Edith Windsor and her fight with the United States over her right to inherit money, tax-free, following the death of her lesbian partner.
"The Supreme Court has announced its decision in Windsor v. the United States and we won everything we asked and hoped for," said Windsor, shortly after finding out the decision on June 26.
The Supreme Court's ruling struck down a key provision in the Defense of Marriage Act (DOMA). It was the part that denied federal benefits to legally married same-sex partners. Now, those couples can get the same federal benefits that all other married people do. Jill Schlesinger, CBS News business analyst and personal finance expert, joins us to talk about what that means for the personal finances of gay couples.
What are the biggest impacts of the Supreme Court's decision on gay couples financially?
"I think the first one is that if you are married and you are a heterosexual couple, you've always had a union under the eyes of the tax law. That's something that gay couples haven't had. So I think that the income tax part of this is going to be important. I will also say that if you are a high-wage earner and you are gay and you want to get married, you might actually be popping up into a new higher tax bracket. So that's something to consider. The estate tax is a big one. The Windsor case, the whole thing that blew up DOMA, was argued on estate law. When you are married as a heterosexual couple, you can pass assets back and forth and the death of the first spouse doesn't have any estate tax implication. But if you were married as a same-sex couple, before DOMA was overturned, money that was over a certain threshold would be taxed," says Schlesinger.
Now that the DOMA has been ruled unconstitutional, legally married same-sex couples will be eligible for over 1,000 federal programs and benefits, including the Unlimited Marital Deduction, which allows spouses to transfer property tax-free to one another. Below is a list of the advantages legally married couples – and now, legally married same-sex couples – have in the U.S.:
- Joint taxes. Gay and lesbian couples will be able to file taxes jointly. However, this may end up costing some couples more money.
- Removes transfer of property tax. Same-sex couples can now qualify for the Unlimited Marital Deduction.
- Medical rights. The ability to make medical decisions on your spouse’s behalf.
- Government employment. Spouses of veterans get preferential treatment when applying for government jobs.
- Health insurance. Qualification for spousal employee health insurance, which is taxed as income.
- Benefits for the disabled. Disability benefits for married and divorced spouses.
- Social Security and Retirement Benefits. The worker's spouse may be eligible for a benefit based on the worker's earnings.
Schlesinger says one thorny issue that gay couples will have to navigate is the possibility of divorce and what that might mean financially.
"When I was a financial adviser, I had a handful of gay clients and when they broke up it was a nightmare because there was no framework that you could use. So I think that in divorce it's going to be also actually helpful for gay couples. I'm not sure how it's going to work if you are married in a state that approves of same sex [marriage]. If I get married in California and then I move to Utah, I'm not exactly sure what happens there. We're going to need some clarity on that," says Schlesinger.
Schlesinger says legal assistance or advice for gay couples looking to navigate this new territory will be more readily available in about six weeks when there is more clarity about the Supreme Court's decision.
"If you're really stuck you can get on the phone with someone who is a financial adviser or planner or CPA who has some depth of knowledge in these things. I think it's going to be hard to just do it on your own. All of my friends who are married in New York state said 'well that's the end of doing taxes on my own'," says Schlesinger.