Marriage equality in the United States is making great gains, but the nation is still far from complete recognition. The current patchwork of recognition versus non-recognition states adds a layer of complication to accessing rights and benefits which leaves Lesbian, Gay, Bisexual and Transgender (LGBT) people wondering where they stand. And financial planning is one of the most complex areas LGBT people and families are left to navigate. The upside is that the changes in laws and application of federal benefit programs mean that many LGBT people are now better able to protect themselves financially.
What Did the Windsor U.S. Supreme Court Decision Change?
In 2013, the U.S. Supreme Court found Section 3 of the Federal Defense of Marriage Act (DOMA) unconstitutional; it thereby ushered in federal recognition of same-sex marriages, and upheld existing marriage equality at the state level, paving the way for additional states to follow suit.
Since this ruling, known as the Windsor decision, additional states now have marriage equality, and more are expected. However, Section 2 of DOMA was not struck down. This means that individual states are not required to recognize a lawful same-sex marriage from another state.
All of this creates a very complicated maze of legal and regulatory implications for same-sex married couples. For example, some organizations and agencies determine eligibility for benefits based on the couple’s state of residence rather than on whether the couple was married. Therefore, couples living in non-recognition states may have some difficulty accessing all of the legal (and other) benefits of marriage.
Alternatively, many federal government agencies now treat same-sex marriages equally. For example, the IRS has leveled the playing field for spousal tax treatment of same-sex marriages, and the American Taxpayer Relief Act now applies to same-sex spouses, providing protection for IRA and annuity rollovers and certain tax breaks, regardless of where the couple resides.
What Does This Mean for Married LGBT Couples?
The implications of the Windsor decision are vast, and still developing. Legally married same-sex couples now can enjoy many benefits that were previously unavailable to them, including greater access to retirement and workplace benefits, health insurance, as well as significant financial planning opportunities. If you’re a member of the LGBT community, the following are important considerations regarding insurance coverage:
- Life Insurance: Same-sex couples may want to dial up or down their coverage amount, since you can designate a partner as the beneficiary and the death benefit is generally free of federal income tax.
- Disability Insurance: Same-sex spouses are now recognized for the purposes of Social Security disability insurance (SSDI), so you may want to adjust your disability gap insurance coverage.
- Long Term Care Insurance: Same-sex spouses may now be covered by employer-sponsored LTC insurance policies.
It’s important to note that state of residence continues to complicate some areas of eligibility; this is because the Supreme Court has not yet addressed the issue of whether individual states need to recognize same-sex marriages celebrated in other states. For example, if a lesbian couple who married in Massachusetts relocate to a non-recognition state, their federal benefits will be recognized — but any state programs and benefits will not.
It is still crucial for same-sex married couples, and all LGBT individuals, to know and understand the impact of the laws of their residence state. If you have questions or need advice, you can talk with a knowledgeable financial or legal professional.
What Does This Mean for LGBT Couples in Civil Unions?
The Windsor decision does not impact or protect couples in civil unions or domestic partnerships. So while there may be state-level spousal protections available to couples in civil unions or domestic partnerships (such as the ability to be covered by your partner’s health insurance), none of the federal spousal protections apply. Find out what protections are available in your state.
There’s another caution. Because civil unions and domestic partnerships are often not recognized outside the state in which they are made, couples with these in place are at risk of their relationship not being recognized if one partner falls ill (or worse) while traveling out of state. So, it’s still critical to have an up-to-date power of attorney and health care proxy.
By keeping a pulse on developments at both federal and state levels, LGBT individuals and families can take full advantage of any victories, so they can feel increasingly confident that their financial future is secure.