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Financial Planning for Same-Sex Couples after the DOMA Decision

In June, 2013, the U.S. Supreme Court declared Section 3 of the Defense of Marriage Act unconstitutional, a decision that has sweeping financial implications for same-sex couples who were married in states that recognize same-sex marriage. Couples should consider both the immediate and long-term impact of the ruling. Here are some of the questions to ask. 

Should I File Amended Tax Returns?

Although tax season is long past, same-sex couples would be well advised to locate copies of the returns they’ve filed since they’ve been married. Because their unions are now recognized under federal law, same-sex couples who qualify are eligible for deductions and credits available to all married couples. If a joint return would have meant a lower tax bite in past years that are still open under the statute of limitations, they may want to consider filing amended returns for those years in order to collect a refund. If you have questions about whether this is the right step for you, be sure to contact a tax professional, like a CPA.

Is There Any Impact on My State Tax Return?

It depends on where you live or if you’ve moved since you married. For example, if a same-sex couple marries in one state but lives in another that does not recognize same-sex marriage, then they will likely be able to file joint federal returns but will have to continue filing separate state tax returns.  However, official resolution is still pending on the tax treatment of same-sex couples who marry in a state that allows it but move to a state that doesn’t.

How Does This Change Our Estate Planning?

An estate tax issue was actually the impetus for the Supreme Court case, so this should be a key consideration for couples. Surviving same-sex spouses were not previously allowed the right to take advantage of the estate tax exemption that applies to married couples. Under the decision, since same-sex marriages are now recognized under federal law, surviving spouses do not have to pay estate tax on the first $5.25 million that they inherit from a spouse. Couples who had previously set up trusts in order to minimize the taxes paid by a surviving spouse may now want to examine whether those trusts are still necessary or may need to update them in light of the ruling. In your planning, keep in mind, too, that now pensions and retirement savings also are not subject to an inheritance tax when passed to a surviving same-sex spouse. In addition, be aware that same-sex couples now qualify for certain Social Security benefits that were not previously available to them. Same-sex couples will also be able to take advantage of gift tax rules that make it possible for married couples to pass assets to each other without being taxed on the exchange. This area is subject to many options and opportunities, so be sure to consult a financial planning professional with any questions.

Is My Health Care Coverage Involved?

Now is a good time to review health coverage choices. For many same-sex couples, spouse coverage under an employer’s health plan was previously a taxable benefit, which may have meant they chose the least expensive option to minimize the tax bill on it. If you no longer have to pay taxes on that coverage because of the ruling, you may want to reconsider which coverage is best.

Any Other Steps I Should Take?

If you haven’t already done so, consider making or revising your will, adding your spouse as a beneficiary to your life insurance or retirement plans and adding his or her name to other accounts, mortgages or leases, as appropriate.