Personal Finance

Financial issues remain complicated for same-sex couples

Opening federal eyes to the existence of gay marriage won’t simplify the financial planning needed to sustain those relationships, some experts say.

In fact, the U.S. Supreme Court’s ruling this week overturning the 1996 federal Defense of Marriage Act may make same-sex marriages more financially complicated in Kansas, Missouri and many other states, financial services and tax professionals say.

Despite the Supreme Court’s ruling, traditional married couples in the U.S. still may receive better treatment in many financial areas than same-sex couples who form a household.

The ruling extends traditional married-couple federal health, pension and tax benefits immediately to same-sex marriage partners in 12 states and the District of Columbia, where their marriages are recognized. But it does not sanction same-sex marriage nationally or require Missouri, Kansas or 36 other states that don’t recognize those unions to do so.

Same-sex marriage partners in states that recognize that union will get many of the same income tax breaks as traditional married partners on their federal tax returns. But none of the regulations making these things happen are written yet, and no one knows how details might work out. It could be months before there are some answers.

“So much that is taken for granted by married couples is not available” for same-sex couples, said Paul Ewing, president of the Prosperity Advisory Group financial planning firm in Overland Park.

And the stakes are high, he said. Same-sex couples “tend to be dual-income, no-kids clients,” Ewing said.

That isn’t always true, since many couples adopt, use a sperm donor or have children from a previous traditional marriage. In any case, same-sex couples have ended up making some vastly more complicated tax and benefit calculations because federal law hasn’t allowed them to file jointly as traditional married couples do.

Don’t expect the complexity to end soon, authorities say.

Among the issues:

• Until the court ruled Wednesday, the Defense of Marriage Act, or DOMA, barred same-sex couples from many of the same Social Security and other entitlements for which their traditionally married neighbors qualified.

Similarly, U.S. Labor Department pension and health plan regulators blocked same-sex couples from sharing the same tax-free health plan benefits offered to traditional married partners. Those included COBRA health coverage if a partner lost a job, or even emergency leave from work to care for a domestic partner

Wednesday’s ruling “is a significant change, but we’re still trying to find out what the impact is,” said Jason Purinton, a partner in the Rains Purinton Babcock financial planning firm in Overland Park. “For now. we’re advising people to go slow before making big changes.”

Same-sex couples and other non-traditional household members use a lot of legal documentation to work around such challenges.

Planning professionals say that, at a minimum, you’re talking about a will or trust, health powers of attorney for both partners, financial and business powers of attorney for both, a Health Insurance Portability and Accountability Act release to talk with doctors about a partner’s medical affairs, and living wills to leave medical instructions.

And sometimes you need seemingly exotic paperwork too, Purinton said. One of his firm’s clients was unable to buy a tombstone for a deceased life partner because no one filled out what are called right of sepulcher papers that authorize non-traditional partners to make burial decisions.

• Non-traditional couples in Kansas and Missouri probably will have to make some extra calculations on their next federal and state tax returns, said Alison Flores, an H&R Block Inc. tax attorney and senior researcher at Block’s Tax Institute in Kansas City.

The court ruling will allow married couples of the same sex for the first time to submit their federal returns as married couples filing jointly. That will be a boon for some because they will be allowed to earn more income before a next-higher tax bracket kicks in, just as traditional married couples have done for decades.

The bad news is that Missouri, Kansas and 36 other states, whose state income tax calculations are based on taxpayers’ federal returns, still don’t acknowledge same-sex marriages.

“The ruling did not tell Kansas or Missouri to change anything,” Flores said.

Tax advisers are hoping a lot more detailed guidance will become available in the next six months.

“Until then, we’re telling everyone to keep good financial records,” Flores said.

• The potential financial complications of ending a same-sex marriage can be nearly as daunting as those involved with starting one.

Same-sex couples who choose to divorce face one fundamental question that probably never occurs to many traditional married couples — where to file.

If you live in a state that does not recognize same-sex marriages, those states have no rules for ending those marriages either, said Thomas H. Sullivan, an Overland Park attorney whose firm, Sullivan Estate Law LLC, works for many gay, lesbian, bisexual and transgender clients.

“Do you move back to Iowa (one of the states that recognizes the marriages) and establish residency?”

• Gift taxes and estate taxes can become even more complicated when a husband or wife in a same-sex marriage dies.

Widows or widowers surviving a DOMA-recognized traditional marriage receive what is known as an unlimited marital exclusion on the estate their partners left, wiping out any taxes they otherwise would owe.

Surviving same-sex widows or widowers haven’t gotten that exclusion, Sullivan said. Even owning a jointly titled house or other property — which seems virtually automatic for many traditional couples — has been trickier for same-sex couples. If one partner buys a house and titles it jointly, IRS has considered that a taxable gift in some situations.

Same-sex married couples, like anyone living outside a traditional marriage, can secure the same financial rights and benefits as traditionally married couples and do anything with their property that the traditional couples do, Sullivan said. The difference is that same-sex partners must use a wider array of tools such as insurance, contracts, trusts and other legal documents to achieve the same success.

“The issues often are the same,” Sullivan said. “But dealing with the complexities is more critical.”