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After gay marriage ruling, same-sex couples must reassess finances

The Supreme Court decision to strike down the Defense of Marriage Act will affect their tax, retirement, estate and healthcare plans.

June 27, 2013|By Andrew Tangel and Alana Semuels

NEW YORK — Andrew Cohen and his husband look forward to a simpler tax season, courtesy of the U.S. Supreme Court's historic ruling on gay marriage.

They had to hire an accountant to help them navigate the tax labyrinth facing gay couples. For last year's federal returns, they filed single because the government didn't recognize their marriage. They filed New York taxes as married because the state recognizes the marriage, but then were required to include a pretend joint federal filing.

"It's just been confusing," said Cohen, a 34-year-old lawyer who married his husband, Christopher Michaud, in July. "We'll just be glad to do our taxes just like any other family."

Now that the high court has struck down the Defense of Marriage Act, people like Cohen have a slew of financial questions as federal agencies and employers begin working out how the Supreme Court's ruling might change decisions made at kitchen tables across the country. The decision will affect not only taxes but also retirement, estate and healthcare plans.

President Obama on Thursday expressed support for a broad interpretation to extend federal benefits to the greatest number of married same-sex couples.

Obama, speaking to reporters on a trip to Senegal, said White House and Justice Department lawyers had been combing through federal statutes even before the court struck down DOMA. A key issue, according to administration officials, is how to treat couples who married in a state that recognizes same-sex unions but who live in a state that does not.

"If you've been married in Massachusetts, and you move somewhere else, you're still married," Obama said, but added that he was "speaking as a president, not a lawyer."

Among the major tax questions facing married gay couples: Will the Internal Revenue Service allow married gay and lesbian couples to amend previous tax returns, which could enable some couples to get refunds from past years? And will federal programs benefit married same-sex couples even if they live in a state that doesn't recognize gay marriage?

"It's unclear how the ruling is going to be interpreted by each state," said Catherine Stamm, a senior associate with Mercer, a human resources consulting company. "We need to get some guidance from the IRS."

The IRS said Thursday it was reviewing the DOMA decision and would "move swiftly to provide revised guidance in the near future."

Joint filings could bring some a marriage bonus if one person makes significantly more than the other, and their marriage brings the high earner into a lower tax bracket.

But it could also cost high-earning couples more. If both spouses make a lot of money, they could be thrust into a higher tax bracket. Couples with one who has a lower income may also not qualify for certain tax benefits or credits when their earnings are combined.

"It's a double-edged sword," said Anna Pfaehler, a portfolio manager at Palisades Hudson Financial Group. "With a joint filing, if you have too much income, you might not be able to take certain credits."

Wednesday's ruling should make many things — financial or otherwise — much easier for Carson Glover of New York.

Glover's husband, who is listed on his health insurance plan, will no longer be taxed for those benefits. Because they now qualify for spousal Social Security benefits, they can cancel the life insurance policies they took out on themselves to ensure their adopted daughter would be provided for.

Neither will be taxed on the house they own together, should one of them die.

"They say there's over 1,000 tax benefits to marriage, but for me, beyond the validation of our marriage and the family that we've built, I feel much better in the long term knowing that my family will be cared for," said Glover, 36.

Transferring savings should become easier too.

Long before the high court's ruling, gay couples have been able to name spouses as beneficiaries for retirement accounts. But when one spouse dies, the account would be classified as an inherited account, requiring immediate withdrawals, said Susan Wolford, a senior vice president at Morgan Stanley Wealth Management in Beverly Hills.

Now, just as with straight couples, a surviving gay spouse could roll the late spouse's retirement savings into his or her account, Wolford said.

"Opposite-sex married couples have been able to do that as long as I can remember," she said. "Presumably — and I put that in quotes — we can have the same opportunities now."

Same-sex spouses should also receive Social Security benefits post-DOMA.

"We could never have talked about my partner being eligible for my Social Security benefits when I die," said Wolford, who married her wife before Proposition 8 halted same-sex marriages in California.

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