Same-sex marriage means financial change
December 31, 2013
Laurie Liddell and Stephanie Weems have been together for just under 10 years, so when 10th Circuit Court of Appeals Judge Robert Shelby ruled that Utah’s ban on same-sex marriage was unconstitutional on Friday, Dec. 20, Liddell said it didn’t take them more than an hour to decide on a Sunday night that they should get married the next day.
"It’s an unbelievable feeling to realize that you are finally an equal to everyone else," Liddell said. "When you’re finally given the choice, it’s an easy choice to make."
Since Shelby’s historic ruling, same-sex couples in Utah have headed to the courthouse to get married before any legal action is taken to overturn it. While motivations to get married may be different for each couple, the legal and financial implications of marriage are the same.
James L. Druffner, Lotus Financial Services certified public accountant, said same-sex couples could already file either jointly or separately for the Internal Revenue Service (IRS), but now they cannot file "single" anymore. "If they file as married federally, they will file married at the state level as well," he said.
The process has been made much simpler compared to earlier in the year when the questions was whether or not same-sex couples would have to file a joint income federal tax return but file separately as "singles" for state income tax return purposes.
However, that means same-sex couples will no longer be able to benefit from filing "single" by one partner possibly taking a standard deduction while the other takes the itemized deduction, Druffner said.
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Robbie Crook, Lotus Financial Services financial planner, said they may also take a hit regarding retirement plan contributions. For example, he said, he met with a same-sex couple earlier in the week who are now married, and their combined income is now high enough that they can no longer contribute money to Roth Individual Retirement Accounts (IRAs).
"On the plus side, though, Social Security benefits are now transferable, which is a huge benefit," Crook said. "There are a lot of positives looking at Social Security, retirement and survivor benefits that are now available, which have not been for these couples before."
Deacon Haymond, attorney, said one benefit is that same-sex couples now have statutory rights as spouses for all probate and trust code purposes. That means if one spouse owns a house and decides to put the other in the title, the other spouse will no longer have to file a gift tax return.
There are also beneficiary rules they will have to consider now that they are related in the eyes of the law. "Now a spouse is required to be part of the planning discussion as you go and change beneficiaries," Haymond said. "Before, you could change beneficiaries however you wanted, but now spousal consent is required."
That applies not only to 401k retirement plans but for any qualified plans, be it Roth or traditional IRA accounts, Crook said. Any qualified retirement fund or contribution plan requires spousal consent if the spouse is not the primary beneficiary.
Haymond said there is a lot to think about in terms of finances when getting married, whatever gender the couple may be, but now that same-sex couples are allowed to marry in Utah, they will be eligible to a greater degree as all married couples are for tax credits and rules pertaining to estate and even generation-skipping transfer taxation.
"If [a same-sex couple] engaged in any planning that was dependent on them not being classified as a married couple, which we refer to in my law firm as ‘non-related party planning,’ there were opportunities for them to consider what it meant to be in transactions where they were not in a transaction with their spouse," he said. "They are now related, so has that fouled up their transaction or carry with it any change in tax consequence or legal circumstance with respect to it?"
All adoption paperwork and former wills, powers of attorney and advanced health care directives, should be "dusted off" and revisited with qualified professionals, according to Haymond. "They can give newly married same-sex couples a competent evaluation of how those change and what those will mean for their families in the future."
While Liddell and Weems may not have taken financial and legal changes into account before getting married, they are glad they did it and are looking forward to what the future holds in store for them.
"Our motivations may have been different from those of other people, but finally being able to marry the person I love was unbelievably empowering," Liddell said. "We didn’t even think about the taxes playing into it, but money isn’t everything. It’s a small price to pay for such an easy choice."