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July 18, 2013 at 04:48 AM
History has been made for same-sex couples, meaning a new era is also on the horizon for many financial professionals. The recent ruling by the United States Supreme Court to strike down Section 3 of the federal Defense of Marriage Act (DOMA) gives same-sex married couples financial advantages they haven’t been able to enjoy in the past. These couples are now eligible for more than 1,000 federal benefits – but only if they are in a state that recognizes same-sex marriage. Although the impact of the ruling will not be immediate for all same-sex couples in the United States, the repeal of DOMA has implications that are important for all advisors to consider and opens a new not-yet-written chapter for our industry.
Why is the ruling so important? Because the same-sex couple demographic in the United States is significant – both in terms of size and financial status. According to the U.S. Census Bureau, there were a total of 901,997 same-sex households in the United States in 2010 (Households and Families: 2010, United States Census Bureau, April 2010). Of those, nearly 40% had more than $100k in annual household income, as compared to only 17% of opposite-sex couples with the average household income of same-sex couples at $106,753. As the number of same-sex couples increases, they will need a new level of support for their financial planning.
The good news is that the ruling may eliminate some of the complications involved with taxes and retirement planning that same-sex couples faced prior to the court’s ruling. For example, a domestic partner’s cost of healthcare coverage may no longer show up as taxable income on their W2 if they are married, generating additional income for the same-sex couple. Additionally, the ruling is expected to allow same-sex married partners to roll over qualified retirement plan death benefits of his/her traditional IRA as a spousal option versus the formerly preferred method: using the stretch option. These couples will need assistance in determining exactly how these essential financial issues have changed and what that may mean for their specific financial situation.
