While financial planning for same-sex couples living in a state that recognizes their marriage just got easier with the Supreme Court's overturning of the Defense of Marriage Act Wednesday, advisors and attorneys say lots of same-sex planning issues remain unresolved.
The benefit of the Supreme Court striking down DOMA "is still pretty narrow," says Anna Pfaehler, a CFP and advisor at Palisades Hudson Financial Group in Scarsdale, N.Y., who advises same-sex couples.
While the high court's striking down of DOMA gives same-sex couples who marry the same federal benefits as straight couples, the ruling also preserved individual state laws on the issue, Pfaehler notes.
"For some very basic cases" the Supreme Court's decision "makes financial planning easier," but "it didn't solve a lot of the problems [involved] with more difficult" same-sex planning cases, Pfaehler says. Planning for same-sex couples is "still kind of a mess."
In a 5-4 decision, the Supreme Court struck down the portion of DOMA that bans the federal government from recognizing same-sex marriages performed in a state. As it stands now, "legally married gay men and women are entitled to claim the same federal benefits — such as social security survivor benefits—and are subject to the same Federal burdens — such as the so called 'marriage penalty' — available to opposite-sex married couples," says John Olivieri, a partner with the law firm White & Case, who advises same-sex couples on how they should structure their estates.
Olivieri notes that "there are more than 1,000 federal laws, programs and benefits where one's marital status is relevant." Previously, he says, "people in a same-sex marriage were not considered 'married' for federal purposes. Now they are."
But individual state laws — specifically in those states that don't recognize gay marriage — can still cause significant planning headaches for same-sex couples. "For couples that are living in states that don't permit same-sex marriage, they will still be in the same situation they were in before" the Supreme Court ruling, says Nicole Pearl, a partner in the Los Angeles office of McDermott Will & Emery, who focuses on estate and wealth transfer planning and marital property agreements.
For same-sex couples who live in the 12 states that recognize same-sex marriage—not including California, which could change soon as the Supreme Court declined on Wednesday to decide a case involving California's Proposition 8 ban on gay marriage—the DOMA ruling brought some real benefits.
As Pfaehler explains, a same-sex couple who were married and living in New York could now file a joint state and federal tax return, and if one partner died without a will, the other partner "would be entitled to receive some of the property." Also, in gifting from one partner to another, the recipient would not have to pay federal gift tax now, she says. "With DOMA repealed, a married, same-sex partner has the same rights as any spouse would. Therefore, you can now transfer property to your (married) partner free of federal gift tax." Both Pearl and Pfaehler agree that the "transitional" issues that come with same-sex marriages can be the most challenging.
"What about the [same-sex] couple who lives in New York and then decides to move to another state that doesn't allow same-sex marriage?" Pearl asks. "Is the federal government still going to recognize" their marriage? Estate and income tax issues also crop up in this scenario, she says. Then there's the couple who goes on vacation and gets married and then returns to a state that doesn't recognize gay marriage. Again, she asks, "Will the federal government recognize it?"
