Financial Planning

Same-Sex Couples: Financial Planning Steps Not to Ignore

Two men relaxing on porch drinking coffee

With marriage equality now the law, the vast majority of financial planning concerns for legally married same-sex couples have become essentially the same as those for any other married couple. From the ability to file joint tax returns and receive employer and Social Security spousal and survivor benefits to reduced complexity with healthcare planning and estate planning strategies, legally married same-sex couples finally have fair and equal treatment under the law.

There still remain, however, some unique financial concerns that same-sex couples need to not only be aware of, but to actively prepare for. The most glaring inequality is unquestionably the persistent wage and income disparity. On average, gay men make just 68 percent of what their heterosexual peers make. And although the discrepancy is significantly less for lesbians (who make 89 percent of what heterosexual women make), they are already at a significant disadvantage given the persistent gender pay gap between men and women.1

Unfortunately, wage disparity can also adversely impact retirement savings balances. According to the latest Federal Reserve Survey of Consumer Finances, same-sex couples have median retirement savings of just $66,000—that’s 25 percent less than opposite-sex couples ($88,000).2

Financial benefits of marriage

While financial reasons should never be the motivation behind getting married, there’s simply no denying that marriage brings with it some important financial benefits. This is even more the case today, with a growing number of employers eliminating programs they had implemented for employees in domestic partnerships.

The ability to now claim “married filing jointly” or “married filing separately” tax status may potentially help lower your joint tax liability by combining income and deductions. It could also make you eligible for previously unavailable tax credits and income exclusions. Same-sex married couples also qualify for spousal and survivor benefits from Social Security as well as workplace retirement plans. This includes spousal coverage under employer medical plans, the continuation of healthcare under COBRA law, and pension continuation benefits (if the spouse with the pension chooses that option).

Marriage provides you with the freedom to make tax-free asset transfers of any amount to your US citizen spouse during your lifetime, and allows for an unlimited marital deduction for any assets transferred to that surviving spouse upon your death. It presents an opportunity to realize insurance discounts on joint policies, affords you next of kin status for emergency medical decisions, and offers you the flexibility to establish a prenuptial agreement.

If, however, you choose not to get married, keep in mind that you will need additional planning to ensure that your partner is financially protected and receives your assets should you pass on.

Unique planning considerations

Along with contributing to a 529 Plan for educational savings, same-sex couples often face an additional significant savings hurdle when it comes to children—the family planning costs associated with having them. With costs typically ranging from $40,000 for adoption to $50,000+ for IVF treatments and more than $100,000 for surrogacy, it’s a major expense. And while a small percentage of heterosexual couples will also face these costs, nearly every same-sex couple who wants children will need to put considerably more money aside for this purpose.

As far as retirement is concerned, make sure you carefully review your Social Security claiming options now that spousal benefits are available. Also, take a few minutes to review all beneficiary designations on your employer-sponsored plan account as well as any IRAs, annuities and insurance policies. Make sure that they not only still reflect your wishes, but that you have named both a primary and contingent beneficiary for each account. When reviewing any insurance policies—especially those you or your spouse may have purchased to compensate for having no access to spousal benefits when you were in a domestic partnership—you may want to consider whether the coverage amounts are still necessary and appropriate.

Don’t just assume that once you’re married, your assets will automatically transfer to your spouse upon your death. Update your last will and testament to ensure that any assets intended for your spouse are clearly reflected in the document. In some states, intestate laws aren’t clearly written to ensure a same-sex spouse automatically inherits a house that’s not in both partner’s names.

Lastly, many same-sex couples also want to bring a greater social conscience to their portfolio by investing in socially worthy endeavors such as affordable housing, healthcare and education, sustainable agriculture and renewable energy, as well as LGBT-friendly organizations. Achieving this goal while still maintaining a competitive rate of return, however, takes considerable planning.

Financial guidance and advice

With the legal and regulatory environment constantly shifting, it’s never been more critical for members of the LGBT community to stay on top of not only new laws and regulations, but also what may potentially be coming down the road. You face a variety of unique planning complexities that an advisor can help you prepare for in advance. Don’t wait until it’s too late. Talk to your advisor today about putting a plan in place to address various potential outcomes down the road.

Start putting your plan in place 

Your SunTrust Private Wealth advisor can help you develop a financial plan that works for you.

1 Prudential Financial, “The LGBT Financial Experience,” 2017

2 Associated Press-NORC Center for Public Affairs Research, Analysis of the Federal Reserve’s Survey of Consumer Finances, 2015

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