Practical legal and financial considerations for same-sex couples tying the knot

Congratulations to couples getting married under New York State’s new provision for civil marriage. For many couples “taking the plunge,” legal and financial matters are issues you began talking about long ago, as many couples getting married now have been committed to each other for many years, perhaps even decades. For others, this time presents an opportunity to have serious conversations about matters you may not have discussed before. As with any couple, it is wise to have matter-of-fact conversations about priorities and planning before entering into a marriage contract.

In the absence of legal federal recognition of gay marriage, all unmarried couples would be wise to concentrate on establishing—to the best extent possible—those property and inheritance rights that we don’t get automatically under the law. That’s why such planning is more important for lesbian and gay couples than married couples. Here are a few of the most important considerations:

Don’t get lulled into a false sense of security

Your marriage will be recognized by New York State, but not by the federal government, as dictated under DOMA. You may file your New York State tax return as a married couple, but you must still file single federal returns. However, since, like most states, New York State starts with federal numbers and makes state-related adjustments, this means you will essentially have to also prepare a “dummy” federal return as married (same status as New York) to get the figures to put on the state return. With regard to estate planning, when one spouse predeceases the other, the surviving partner will still not have federal protections. This includes, but is not limited to, Social Security survivorship benefits or federal pension payout options. This also has implications in your travel plans and arrangements. Should something happen to one of the two of you in a state or country that does not recognize your marriage, the protections of marriage will not follow you. Every same-sex partnered adult, regardless of marital status, should have a will or living trust, durable power of attorney for finances and for healthcare (a.k.a. healthcare proxy), and disposition offinal remains documents.

Planning for financial loss

Each spouse, and children, should they have any, should be protected against financial loss. This includes vehicles such as life insurance and disability income insurance to protect income(s) should a partner become sick or hurt. Depending on the couple’s ages and circumstances, long-term care insurance may also be a good idea. Again, keep in mind that Medicare, while administered by individual states, is a federal program and complies with federal guidelines. Be realistic in making the decision how much insurance to buy, and what kinds of plans best suit the needs of you and your family.

Health insurance

Health insurance provided by employers to their employees, their employees’ federally recognized spouses, and their employees’ children is considered a non-taxable fringe benefit under federal law. Health insurance for an employee’s same-sex spouse also is a fringe benefit, but is not deemed exempt from income tax liability by the Internal Revenue Code. For federal tax purposes, employers who provide insurance for same-sex spouses of their employees must report the value of those benefits as taxable income imputed to their employees.

Real estate

Real estate considerations are also complex. If a house is titled in a single name only, upon that partner’s death, ownership of the house will pass as designated in the deceased’s will (if there is one) or as provided by state law, (which now will be the spouse); either way, it will go through probate. If the couple owns property in a state that does not recognize their marriage, sharing ownership as joint tenants with rights of survivorship (“JTWROS”) is a consideration. If the house is titled JTWROS, and one partner dies, the other should receive ownership of the house automatically regardless of the will, state inheritance law, or any claims by outside parties. Outstanding mortgage balances should be worked in to insurance plans. Consult a real estate attorney before making any changes to real estate documents, and be mindful that changes may trigger IRS gift tax events.

Children

Depending on your circumstances, you will need to draw up parental rights agreements that suit your needs. You may consider second-parent adoption. If you move to a state that doesn’t allow unmarried couples to be co-parents, the kids could end up in temporary state custody after the legal parent dies and before the courts decide permanent custody. Often you can avoid this by naming a temporary or “bridge” guardian, who will look after the children in the interim. If you are considering a surrogacy agreement, remember that a child can only have two parents on a birth certificate, and only a biological father can be listed. Surrogacy contracts are unenforceable in New York. While divorce provides separating spouses with defined “whose is whose” regarding personal property and the disposition of natural or adopted children, the state’s participation is limited to issues within its own jurisdiction. Planning for children’s needs with adequate life insurance is a key component in this plan.

Beneficiaries

Retirement assets such as IRAs, 401k plans, 403(b) plans, etc., provide the owner the ability to select a beneficiary for the asset(s) after death. If the owner does not select a beneficiary, or the selected beneficiary dies before the owner, the asset(s) will revert to the owner’s estate and be distributed through the probate process. If the owner did not have a valid will, state law will determine who receives the asset(s)—and that may not be the owner’s intended beneficiaries. Be certain to designate your beneficiary(ies), and check all of your beneficiary designations once a year to ensure they accurately reflect your current intentions.

Let your new awareness of your relationship act as a catalyst to have a real “kitchen table conversation.” Talk about potential situations, and identify roadblocks or challenges, and talk them through. You want to maintain your lifestyle into retirement or in the event of an unforeseen incident, so talk about how you’d handle those things, together. While the change in State Law doesn’t yet achieve full equality for your relationships, know that you are building the road of history.

The legal and financial impacts of your relationship are difficult and complex waters to navigate without the aid of professionals. Find people you trust to work with, and look at it as another long-term relationship. Your circumstances are likely to change and it will serve you well to work with people who appreciate and understand the evolution of your unique circumstances over time.

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