By Linda Stern
WASHINGTON, June 26 Same sex couples are
rejoicing after today's Supreme Court ruling declaring the
Defense of Marriage Act unconstitutional. It offers federal
recognition of the unions and invites them into a new and
potentially lucrative world of shared tax, retirement, estate
and employee benefits.
"It will be less costly to be gay," said Debra Neiman, an
Arlington, Massachusetts, financial adviser and author of "Money
But those financial benefits won't be delivered
automatically, and couples will need to take specific actions to
make the most of their new legal status. They are very likely
going to need professional guidance on items like taxes and
estate plans because the ruling creates almost as much
uncertainty as it resolves.
"This is going to be a multi-stage process," says attorney
Nicole Pearl of McDermott Will & Emery, in Los Angeles. "The
U.S. will have to deal with some of the cleanup on this."
There are two major points of uncertainty that will have to
be clarified via new federal and state rules and - no surprise
here - future court cases.
First, it isn't clear whether couples who were wed in states
that sanction same-sex marriage, but reside in states that do
not, will be recognized by the federal government. Based on
related marital case law, Pearl expects that to be a patchwork.
A couple who marries and lives in New York for 10 years and then
moves to Texas may be recognized, while a Texas couple who fly
to New York only to get married may not, Pearl speculates.
The second issue involves retroactivity. While gay married
couples, widows and widowers can go back and file amended income
and estate tax returns, it's not clear whether they can go back
longer than three years, the time currently allowed by the
Internal Revenue Service for tax returns to be amended.
So, look for a flurry of regulations from the IRS and other
federal agencies, and call your accountant and your lawyer while
Here are some other financial implications of the ruling:
Wealthy people have the most to gain from federal
recognition. It will mean that spouses can leave each other as
much money as they want - billions of dollars, if they fall into
that select class - without paying federal estate taxes, just as
married heterosexual couples can. A couple together will also be
able to leave as much as $10.5 million, free of estate taxes, to
Under current law, even state-married gay couples don't have
those spousal exemptions. Instead they each have a $5.25 million
limit on the amount they can leave each other without paying
federal estate taxes. And while each person can leave $5.25
million to the kids directly, the second spouse can't leave more
than that, even if the first spouse didn't "use up" his or her
What does that mean? You may be able to drop your life
insurance if you've been carrying a pricey policy just to pay
estate taxes, says John LeBlanc, a financial adviser with Modera
Wealth Management in Boston.
Not all the new changes will save you money. If one of you
is wealthy and the other is not, you may have to spend time,
money and emotional energy considering a prenuptial agreement.
Rather than hiring lawyers to combine your financial lives, you
may have to spend money on lawyers to keep them separate, if you
are married or want to marry.
NEW RETIREMENT STRATEGIES
The hottest retirement strategy among heterosexual married
couples involves optimizing Social Security benefits, in which
one spouse takes benefits early and then switches to spousal
benefits later. That strategy will become available for same-sex
There is an even bigger benefit coming your way with federal
recognition. Same-sex widows and widowers would be eligible for
spousal Social Security, meaning that when one spouse dies, the
second one can switch to that person's benefits if they are
Pension benefits are more tricky, says Kyle Young, a
financial adviser in Short Hills, New Jersey, and a vice
president of Wells Fargo Advisors, where he specializes in gay,
lesbian, bisexual and transsexual (GLBT) clients. Big companies
may find themselves required to give spousal pension benefits to
workers in states that sanction gay marriage but not in states
that don't, he says.
It's not clear whether those companies will give all
same-sex couples parity on pension issues, even if they don't
live in the right states. And if they do? That could actually
hit some companies' pension funds hard enough to push them into
AMENDING THOSE TAX RETURNS
The Supreme Court giveth, and it taketh. Moving to a joint
federal tax return could cost same-sex couples, since they would
no longer be able to optimize their deductions by giving them
all to one partner or the other. Meanwhile, there is the
"marriage penalty" - the tax code is structured with progressive
tax brackets so it can penalize married couples who have roughly
And there is no requirement for married couples to file
amended tax returns following this ruling, says Pearl. But some
may find that worthy - a couple with disparate incomes can find
that joint filing lowers their tax burden.
Depending on whether effective dates for the decision are in
the future or the past, there may be moves to make as soon as
the court acts. Separate filers who will eventually file jointly
could make sizable charitable gifts now and apportion them to
the partner who will save the most by making them. A retroactive
decision that goes back beyond January could prompt some to file
amended tax returns for previous years.
Says LeBlanc: "I'm going to literally be looking at every
single tax return and estate document for all my same-sex