The Legal Fight: What’s Mine, Yours, and Ours
There is unlimited transfer of assets between traditional husbands and wives. But same-sex couples must piece together their own financial and legal protections so as to not leave their assets vulnerable in the event of a breakup or death.
Nashville, Tennessee residents Dr. Kevin B. Johnson, 51, and Rob Smith, 57, obtained their civil union—a legally recognized form of partnership similar to marriage—in Vermont in 2006. But their civil union has no legal standing in Tennessee. Still, “it was our way of telling people the level of commitment we had for each other,” says Johnson, who was named to BLACK ENTERPRISE’s May 2008 list of “America’s Leading Doctors.”
An upside for Johnson is that he works for a hospital that acknowledges his husband.
“Vanderbilt has a domestic partnership model. Rob gets all of the spousal benefits that Vanderbilt provides; that includes 403(b) survivor benefits and use of the health facilities.”
But Smith, a registered nurse, points out, “once we leave the Vanderbilt campus there is really no protection. We are essentially two guys living in the same house.” Also, “because we are two divorced dads, we needed to carefully document through wills, trusts, and medical directives, what we wanted to happen to protect our spouse if one of us dies, because we have no legal relationship in our state of residence,” Johnson adds.
“The issue of property and titling is one aspect of estate planning, Making sure a partner is named as the primary beneficiary on life insurance and retirement accounts is especially important for same-sex couples, otherwise their assets will pass to a parent or other relative,” says Melvin Kornegay, a West Palm Beach, Florida-based Wells Fargo adviser.
Even so, there are financial ramifications: Whereas a widow could take her husband’s 401(k) and roll the assets over into an IRA without paying taxes, a same-sex partner as a beneficiary would need to consider several options including a lump sum distribution, opening an inherited IRA; a “stretch” IRA or life expectancy IRA; or a disclaimed IRA.
“Retirement planning and estate planning is widely burdened by marriage inequality” says Ravi Perry, an assistant professor at Mississippi State University. “We have to take extra steps and added legal fees. Even after death certain state laws do not recognize or support your marriage—making it all too common that our wishes as a gay married coupled are not granted.”
Last year, Perry, 30, married his partner of more than four years, Paris Prince, 29, in Massachusetts, their state of residence. While they’ve considered relocating for work, they’re finding that marriage equality impacts their earning potential, notes Prince, a compliance officer for the Massachusetts Commission Against Discrimination.
“Discriminatory state and federal marriage laws limit potentially attractive career options for us as two highly educated and skilled young people. We must factor this state-specific discrimination into our future career plans instead of only focusing on the best opportunities to flourish professionally.”
Another issue is the tax burden same-sex couples must bear. Not being allowed to file joint tax returns means they miss out on certain tax deductions.
“It becomes complicated because we can file jointly on our state taxes but we have to file separately on our federal taxes,” says Cohen. “We are both federally taxed as a single person. Only Tasha, 41, can claim our daughter as a dependent. Singles typically pay more than families. So, we are hit extra hard.”
Firms Offering Gay-Friendly Financial Services
Whether it’s a lack of healthcare benefits, inability to file joint tax returns, or the denial of access to pension plans, a slew of issues face same-sex couples. With an uptick in demand for specialized financial services as more states pass marriage equality laws, firms such as Wells Fargo, Bank of America Merrill Lynch, Morgan Stanley, Northern Trust, and UBS have divisions catering to LGBT clients. Wells Fargo even worked with the College of Financial Planning to develop an Accredited Domestic Partner Advisor certification in 2010.
Not just any adviser is prepared to deal with the unique financial pitfalls facing same-sex couples, with marital benefits varying by state, says Lisa James, a Chicago-based Merrill Lynch adviser. “It’s important that they work hand in hand with an estate planning attorney and a financial adviser.”
Five documents that everyone should have: basic will, durable power of attorney, healthcare proxy, living will, and an irrevocable trust, adds Wells Fargo adviser Mel Kornegay. But for same-sex couples, it is even more crucial to set up a trust that warehouses all assets, including property and designated benefits from life insurance policies and retirement accounts. “It is very easy to challenge a will, but it is difficult to challenge a trust, which is not probated.”
With the different financial issues that arise, especially the transfer of wealth, says James, same-sex families need an adviser who is well versed on the strategies that should be used to address them.