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Lifestyle

Marriage

What the Same-Sex Marriage Ruling Means for Couples' Finances

Jay Norris gives his partner, Doug Fillmore, a kiss under a Just Married sign their neighhbors put up for them at their home on the Eastern Promenade in Portland, Maine.

Jill Brady—Press Herald via Getty Images

The much-anticipated Supreme Court ruling on same-sex marriage has been decided, with the majority of judges declaring it a constitutionally protected right.

While 37 states previously recognized same-sex marriages, today's ruling means that no state can ban same-sex marriage, or refuse to recognize a marriage performed legally in another state.

It also heralds big changes in the way same-sex couples manage their finances. Since the court struck down a key part of the Defense of Marriage Act in 2013, couples who were legally married in a state that recognized their union have been able to file joint federal tax returns and receive other federal benefits. Today's decision extends that ruling to the rest of the country and affects a host of other financial issues, including Social Security, estate taxes, and retirement planning. Here's a rundown.

Income taxes: Married same-sex couples in any state can now file joint federal returns. Those already living in states where gay marriage is legal know that this can be a mixed blessing, because in some cases filing jointly could trigger a higher tax bill. Typically, the more disparate a couple's incomes, the more likely spouses are to benefit from filing jointly, says financial planner Stuart Armstrong II, who married his partner in Massachusetts in 2005. If filing together results in a lower tax bill, Armstrong advises looking into filing amended returns for the past three years.

Social Security: Now that same-sex marriage is legal in all states, couples can access spousal benefits no matter where they may be living at the time they file. That's a big deal when it comes to retirement security. A recent analysis by investment advisory firm Financial Engines found that a same-sex couple could receive an additional $20,000 to $250,000 in lifetime benefits from Social Security by taking advantage of spousal and survivor benefits that were unavailable to them as single filers.

Estate taxes: Before the DOMA case, same-sex spouses could not transfer property to each other without potentially owing federal gift tax, nor could they inherit assets without paying federal estate tax (if the estate was large enough to trigger the tax). Now there is no limit on the amount spouses can give each other, during life or through an estate plan, without incurring taxes. They're also entitled to the married couple's estate tax exemption of nearly $11 million for 2015.

Employee benefits: In the past, partners of people employed by small companies were unlikely to have access to their mate's health insurance or other benefits, a situation likely to change with federal recognition of same-sex marriage. But even at companies that offered partner benefits, the value of those benefits was treated as taxable income in the policyholder's paycheck, which will no longer be the case. It's worth noting, though, that some employers have already rolled back health-insurance and other benefits offered to domestic partners in states where it has been legal for same-sex couples to wed, requiring them to get married in order to keep those perks. With same-sex unions legal nationwide, more employers may follow suit.

Pensions and retirement accounts: Previously, same-sex couples were not eligible for survivorship benefits from pensions and other retirement plans. Now a surviving spouse can roll an inherited IRA into their own account without triggering a taxable event. Married same-sex partners can now also fund a spousal IRA for a nonworking spouse, and no longer need to worry about losing out on 401(k) benefits even if they weren't specifically designated as the beneficiary.

Default decision making: Same-sex partners who wanted to be sure that they could make health care or financial decisions on the other's behalf used have to complete legal paperwork granting power of attorney. Now, spouses will automatically be regarded as the default decision makers for each other.

Divorce: While we all want to think that a union won't end, the right to marry brings with it the possibility of divorce. Previously, same-sex couples could have faced significant taxation when they divided shared property. Now, says Armstrong, in the event of a split, the division of assets such as property or an IRA account won't be treated as a taxable event.