Marriage for same-sex couples has recently come into the media spotlight after Justices Thomas and Alito attacked the 2015 landmark decision to legalize it—a reminder to all of us that this important freedom is still on shaky ground. But even so, recent updates in LGBTQ demographics show that in the past five years same-sex couples have been tying the knot by the tens of thousands.
As a result, many LGBTQ couples now find themselves with new benefits that they don’t quite understand. On the other hand, many others hesitate to marry due to misconceptions about the financial implications of those benefits.
In this post, I hope to offer some clarity on the changing landscape of marraige, highlight a few of the benefits that are now available to same-sex couples, debunk some financial myths of marriage, and note the importance of financial planning for same-sex married couples.
Changing demographics of marriages for same-sex couples
According to Gallup, there were about 390,000 same-sex marriages in early 2015 and about 600,000 same-sex domestic partnerships, just before the Supreme Court ruled on marriage equality. Now, only five years later, the U.S. Census Bureau’s American Community Survey found that a little over 586,000 same-sex American households are married couples (58% of 980,000 same-sex households in total), an increase of almost 70% from 2014 figures.
As Gary Gates, a demographer specializing in LGBT issues, said in his recent statement to the Associated Press, “Opponents of marriage equality frequently argued that same-sex couples really weren’t all that interested in marriage. But the large increase in marriages among same-sex couples since marriage equality became legal nationwide offers evidence of the clear desire for marriage among same-sex couples.” (Read more here).
The updated demographics are largely thanks to the U.S. Census Bureau including for the first time updated relationship identification questions that would better capture the numbers of same-sex households and more nuanced data with less errors.
By state, the greatest concentration of those same-sex households are in the District of Columbia, where about 2.4 percent of households are same-sex couples. Delaware comes in second with same-sex couples comprising 1.3 percent of households, followed by Oregon, Massachusetts, and Washington, all with a little over 1 percent.
Ultimately, the most important takeaway from the newest data is that same-sex marriages have skyrocketed in a relatively short amount of time, which means that, suddenly, married LGTBQ couples find themselves playing by a new set of financial rules.
The top benefits of marraige for same-sex couples
Given that the changes in policy are still relatively new, LGBTQ couples may not be aware of their benefits (of which there are over 1,000) under federal marriage laws. Like many straight couples, they simply might not be looking into what benefits are now available to them.
Here are some of the top marriage benefits available to same-sex couples:
- Tax Benefits If one spouse earns significantly less than the other, filing taxes jointly can save you quite a bit on your tax bill, because the combined income could put the higher-earning spouse in a lower tax bracket. This is sometimes referred to as the “marriage bonus”.
- Health Care Financial & Legal Benefits Although more and more companies are offering health insurance benefits to domestic partners, legal marriage guarantees it. Married couples can also contribute more pretax dollars to HSAs (health savings accounts), an extremely advantageous all-in-one healthcare funding and wealth building tool—not to mention, an HSA can be passed directly to the surviving spouse if one passes away. And there’s a big tax difference between having a domestic partner and being married: When employers pay for a domestic partner’s health insurance, the portion of the premiums paid by the employer ends up being taxable income and hence taxed. When you’re married, the portion of health insurance that the employer pays is not taxable income. One more important protection is that married couples can now legally speak for each other when making medical decisions and have rights of visitation when hospitalization occurs.
- Property Ownership If two unmarried people own a property together, there could be a big tax consequence when it comes time for one to inherit the house. Married couples, however, can pass financial assets to one another, like homes and retirement accounts, without triggering any tax bills.
- Retirement Planning & Social Security Benefits Marriage makes it a lot easier to share retirement benefits with your partner. If one person passes away, the surviving spouse can absorb any existing 401(k) account into their own 401(k) or claim an IRA as their own—a layer of security that can affect entire lives. Also, marriage can boost Social Security benefits. If you’re married, you have the option of receiving 50% of your spouse’s social security payments or 100% of your own, whichever is higher. This can be advantageous depending on the income of the couple.
Debunking some top financial myths of marriage
On the other side of the coin, lots of same-sex couples express hesitation about getting married because of popular misconceptions about marriage. Here are a few of the top ones:
- The likelihood of the “marriage penalty” It’s often said that getting married will push you into a higher tax bracket, costing you more in taxes, but this is not nearly as common as we think. If this does occur, any extra taxes often wind up being a relatively small amount. It is possible that a couple will pay more in taxes if both people are high earners, but in cases where the couple earns either the same amount or very different amounts, the overall tax bill could be the same or less. Stacking this risk up against the benefits that come with marriage can make this worry insignificant. This 10-minute Khan Academy video puts the “marriage penalty” fear into good perspective.
- Getting married can hurt your credit score Credit scores remain associated with the individual and are not applied to households. If one person marries another with poor credit, it does not mean their credit score is in jeopardy. Rather, you need to consider which bank accounts or credit cards you decide to jointly hold, because in that case, the activity in those accounts will affect both credit scores. Although, as with the “marriage penalty” myth, the opposite can often be true where jointly titling certain accounts and responsible usage can give a major lift to someone’s less-than-ideal credit score.
- You should merge your finances once you get married Many married couples decide to merge their bank accounts or open new joint accounts once they get married, but this is not a requirement. It’s normal and reasonable to keep finances separate, especially when it comes to small, discretionary spending on things that don’t require “big purchase” discussions. Ultimately, how a couple handles merging their finances depends on their communication style and preferences.
A new chapter for marriage and financial planning
Any married couple will undoubtedly benefit from having a financial planner guide them through the complexity of being a married household. But LGBTQ couples will find a specialized financial planner is even more valuable because their entire financial strategy could be flipped on its head.
It used to be that unmarried same-sex couples would have to employ all sorts of advanced planning techniques just to achieve the same end goal that heterosexual married couples were entitled to by default. For instance, before being allowed to marry, if one person in a same-sex couple was entitled to a pension through their employer, their partner would not be entitled to survivor benefits. They then would have to purchase a costly life insurance policy to give them peace of mind. There’s an enormous cohort of same-sex couples considering marriage or have already gotten married, who are deeply entrenched in these kinds of strategies, thus requiring a careful and thoughtful process of unwinding.
We in the LGBTQ community have unique financial planning needs as it is, and with all of the policy changes that have happened to same-sex marriage law, it’s important to have support from someone who’s been on that same journey.
Here are a few specific ways that an LGBTQ financial planner can offer valuable support to same-sex couples as they navigate marriage:
- Inclusive environment LGBTQ married couples still face discrimination at individual, local, and state levels, and thus have to make the tough decision of whether or not to disclose their relationship to family, friends, employers, and other professionals. To successfully care for marital finances, a same-sex couple needs to have the space to be their full, authentic selves and openly discuss their lives, goals, and dreams.
- Experience with LGBTQ-specific planning, before and after marriage equality LGBTQ planners have the knowledge and training to analyze federal marriage benefits and plan for marital finances under today’s marriage laws; and at the same time, they have the awareness of historical planning strategies that were once necessary for unmarried same-sex couples. This knowledge comes in handy especially when a couple needs help discerning between various options, new and old.
- Understanding of the psychology of same-sex couples When marriage became legal for LGBTQ people, we all had to go through a major shift in seeing how our lives might look long-term. Same-sex couples now have to think about things like marital property and legal rights pertaining to health care in a totally different light. A financial planner who is sensitive to this mindset is just as important as one that provides education and guidance.
The Supreme Court ruling in 2015 brought about equal footing for LGBTQ people. But the right to marry isn’t something to be taken for granted (remember, the marriage equality ruling only passed 5 to 4!). The rapidly upward trending numbers in same-sex household demographic data illustrate just how important the right to marry is to the LGBTQ community, and it also means that many same-sex couples now have the responsibility to play by a new set of financial and legal rules. Read more here.
If you need help, seek the support of an LGBTQ financial planner who has an understanding of the unique journeys of same-sex couples, and who wants to see us thrive in whichever type of relationship status we choose.
Brandon Tacconelli is the Director of Client Care at Thinking Big Financial, Inc. Thinking Big is a fee-only financial planning firm in New York City specializing in working with the LGBTQ+ Community.