Since 2013’s Supreme Court ruling in United States v. Windsor (requiring the Federal government to recognize the marriage of same-sex couples in states where they were legally performed) and 2015’s subsequent Obergefell v. Hodges ruling (making same-sex marriage a constitutional right), the rate of marriage in the LGBT community has nearly quadrupled. In 2016, 30% of LGBT couples indicated they were married compared to just 8% in 2012. In 2012, only 15% of LGBT couples had children; today that percentage has more than doubled (39%).1
These landmark rulings haven’t merely leveled the playing field socially; they’ve also eliminated many of the financial hurdles and disadvantages that were commonly associated with civil unions. From the ability to file joint tax returns and receive spousal benefits from employers and the Social Security Administration, to reduced complexity with healthcare planning and estate planning strategies, same-sex couples finally have fair and equal treatment under the law.
Moving from domestic partners to spouses
With a growing number of employers phasing out domestic partner benefit programs in the aftermath of Obergefell, many long-term domestic partners have chosen to marry. If you’re one of these couples, undoing the complex financial strategies that were put in place out of necessity as domestic partners (and now no longer necessary) is generally the first order of business.
It’s especially important to ensure that all beneficiary designations are up-to-date on any employee benefits, insurance policies, IRAs and annuities. And make sure that all documents use the right gender pronouns. It may seem like a trivial matter; but it can save you potential headaches down the road.
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.
Lingering inequalities require financial planning
Certainly, the most glaring inequality that same-sex couples continue to face is wage and income disparity. On average, gay males make just 68% of what their heterosexual peers make. And although the discrepancy is significantly less for lesbians (who make 89% of what heterosexual women make), they are already at a disadvantage given the persistent gender gap between the pay of men and women for the same work.1
And while child-rearing by LGBT parents is by no means a new phenomenon, marriage equality eliminates many of the obstacles and paves the way for easier adoptions. But with children come significant new financial burdens, not the least of which is a need to plan for educational expenses. Given a 6% average annual increase in the price of tuition, for a child born in 2017, the cost of a 4-year undergraduate degree at a private university (including tuition, fees, and room and board) could exceed $500,000.2
Specific estate planning challenges
Marriage and children bring with them additional financial complexity. Who will inherit your assets when you die? Who will care for your children if something happens to you? And how will you cover costs if you become sick or disabled? You’ll likely need to consider putting in place far more thoughtful income protection and estate planning strategies.
Keep in mind that while Medicaid allows a healthy heterosexual spouse to remain in the couple’s home when their husband/wife enters a nursing home and applies for Medicaid benefits, the same doesn’t hold true for same-sex couples. In same sex marriages, the healthy spouse must buy out his or her partner’s interest to remain in the home. For this reason, same-sex couples may want to closely examine long-term care insurance options with their SunTrust advisor.
Considering that the LGBT community skews decidedly younger than the population at large, it’s often assumed that the unprecedented $30B wealth transfer from Baby Boomer parents to their Gen-X and Millennial children expected over the next 30 years may help solve many of these financial challenges. What few people factor into the equation, however, is that persistent lack of lifestyle acceptance and resulting family tensions may significantly disadvantage LGBT children on the inheritance front.
Marriage and family are life events that bring new financial challenges and require careful planning. Make sure you take time to sit down with your SunTrust advisor to explore all the opportunities and options that the Supreme Court ruling has presented.