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Financial Planning > Tax Planning

One Year Later: How Same-Sex Marriage Rights Have Changed LGBTs’ Financial Lives

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One year ago, on June 26, 2015, the Supreme Court ruled that the Constitution guarantees a right to same-sex marriage.

In the year since that historic day for the gay rights movement, how much has changed in the financial lives of the LGBT community?

“It’s really amazing because so many couples – as soon as that decision came down – many, many couples went immediately and got married,” Ellen Krider, vice president and financial advisor at RBC Wealth Management, told ThinkAdvisor.

Krider, a longtime ally of the gay and lesbian community, has built a significant portion of her business in the LGBT client market.

“I think the biggest thing is it put them on a level playing field to have the same benefits … as the traditional definition of marriage,” Krider said.

The marriage rate of same-sex couples more than tripled since 2012, having increased to 30% from just 8% in 2012, according to a Prudential Financial survey of LGBT Americans.

Prudential, which had first surveyed the LGBT community in 2012, again revisited this community in its first survey of LGBT Americans since the U.S. Supreme Court ruled states must permit same-sex marriages.

Speaking at The Center, New York City’s lesbian, gay, bisexual & transgender community hub, on Thursday, Kent Sluyter reflected on what’s changed since the first survey.

“I would say more of their dreams have come true since then,” Sluyter, the CEO of Individual Life Insurance and Prudential Advisors, said. “In a very short period of time, the increase in the number of marriages, the number of couples that have children is just tremendous.”

The Prudential survey finds that the number of LGBT parents continues to grow and is expected to increase significantly starting with Generation Y. Already, 23% of lesbians and 7% of gay men are fiscally responsible for a child under age 18. Among Gen Y study participants, 11% already have children and an additional 49% plan to have children in the future.

The 2016/2017 LGBT Financial Experience surveyed a diverse group of 1,376 lesbian, gay, bisexual and transgender Americans ages 25 to 70 from urban, suburban and rural communities throughout the 50 states in April and May.

One thing is certain a year later: Having the fundamental right to marry has begun to simplify financial lives for the LGBT community.

“Certainly the change in marriage rights has, in some ways, simplified financial planning. That’s the good news,” Sluyter told the crowd gathered at The Center. “The financial planning space has gotten a lot easier. There are a lot more advisors that can help with respect to addressing these kinds of issues because it isn’t as complex.”

Half of those surveyed by Prudential said being in a legally recognized same-sex partnership has simplified their finances, up from 13% four years ago.

Those surveyed by Prudential say the right to marry has given them the ability to file joint tax returns, pay for health benefits with pre-tax earnings, list same-sex partners on health insurance, and ensure that a loved one’s interests are protected in the event of death.

Taxes, Taxes, Taxes

While financial planning for same-sex couples has simplified, that’s not to say it will be simple.

There are still taxes to be dealt with, as Lauren Young, money editor at Reuters, points out.

“The IRS! Marriage penalty! AMT! Ohmygosh, these are things that the gay community – people in higher incomes for sure – are encountering,” said Young, during a press event at The Center in Manhattan. “Taxes are huge. People are surprised the first time they file taxes and they’re in a different tax bracket and they may have to pay the alternative minimum tax, which originally was a tax for millionaires.”

Krider also reiterated this point during a conversation with ThinkAdvsior.

In some cases, she said, there was a “little bit of a sticker shock” at tax time.

“Even if they were married before the [Defense of Marriage Act], they were filing their taxes separately,” she said. “Once they started filing married, they found themselves in a higher bracket so the tax bill was a little higher. We’ve always jokingly called it the marriage penalty.”

Marriage also brings many tax benefits to same-sex couples that previously would not have had. For instance, Fiduciary Trust’s Thanda Fields Brassard said one of the biggest benefits to same-sex couples can now enjoy is the unlimited marital deduction. Brassard has talked about the financial planning issues facing the LGBT community for more than 10 years.

“In federal tax law, if you are married and you transfer property to your spouse either during lifetime or at death, there’s absolutely no tax consequence to that at that point in time,” Brassard told ThinkAdvisor. “As you can imagine, before this case, if you had a situation where a couple was married for state purposes but not for federal purposes and one spouse gave another spouse a million dollars – on the state level, there might be no tax consequences. From a federal level, there were huge tax consequences.”

Brassard, an estate planner, said this is “one of the most important benefits” that same-sex couples now have.

“Think about all the possible ways you might be making a gift to your spouse – whether it’s writing a check for them, paying their taxes, paying a real estate bill for a piece of property that you both own, taking withdrawals out of a joint checking account or the other person’s checking account,” she told ThinkAdvisor. “I mean there’s so many ways in everyday life that comes into play. Before these cases, it was a real problem for same-sex couples to navigate.”

In some cases, Krider said couples may have had to unwind legal documents before being able to get married and take advantage of many of these tax benefits.

“A lot of our clients – as we used to call it ‘duplicating marriage via legal documents’ – had to unwind some of that because it became unnecessary,” she told ThinkAdvisor. “I had one older couple where the older [man] had acutally adopted the younger because that was the only way they could duplicate a family relationship. After marriage was legal, they went to a judge to have the adoption vacated.”

Struggles Remain

While marriage for same-sex couples has brought with it many benefits, the Prudential survey reveals there are still many financial struggles facing the LGBT community.

“Their dreams are coming true, but they also have lots of issues,” Sluyter said. Adding “Wage inequality, workplace insecurity, housing rights are significant overlays still. They’re causing this inability to really, truly, fundamentally address financial security in this community.”

For example, the survey finds the LGBT community faces income gaps, which may limit their ability to prepare for the future. According to the survey, lesbian women earn less than heterosexual women, reporting an average annual salary of $45,606 vs. $51,461. Gay men reported earning an average of $56,936, with heterosexual men earning $83,469.

Glennda Testone, the executive director of The Center, said that much of what she sees every day is echoed in this report.

“It’s incredible to be able to have concrete data to back up the things that people say to us on a regular basis,” she said during a press event at The Center. “People in our community are struggling to make ends meet. They are concerned about the future. They are concerned about how do I save for tomorrow when I’m trying to survive and get through today.”

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