Wells Fargo Advisors LGBT Insight: Finances and Marriage Equality

Because of the lack of federal recognition of their unions, same-gender couples face significant financial-planning challenges.

Kyle D. Young, CFP, Accredited Domestic Partnership Advisor and Vice President – Investment Officer, Wells Fargo Advisors, addresses the unique financial challenges faced by same-gender partners. This is the first article in a continuing series. Watch his presentation from DiversityInc's Innovation Fest! below.

In recent years, 20 states across the country have passed legislation granting relationship recognition to same-sex couples. Depending on the state of residence, the terminology varies from marriages to civil unions to domestic partnerships. Regardless of the name, one thing remains the same: The rights, benefits and privileges extended with any of these same-sex unions ends at the respective state border.  

This patchwork approach to marriage equality for LGBT couples creates a host of complications. For instance, the benefits received from a marriage in Iowa are not recognized when a couple travels or moves to another state that lacks any type of recognition of their union. Honoring a marriage and reciprocating the benefits that come along with that marriage have long been the norm for opposite-sex spouses in all 50 states.

Discussion of federally recognized marriage equality is impossible at the moment, because of a piece of federal legislation signed into law in 1996. The Defense of Marriage Act, commonly known as DOMA, clearly defines a marriage as a union between one man and one woman. This law restricts the federal government from recognizing any state-level union of same-sex couples, the effects of which can be felt in almost every financial- and estate-planning discussion.

The U.S. tax code, for instance, does not recognize same-sex LGBT couples for tax-planning purposes. This includes joint filing of income taxes, avoidance of gift taxes when transferring assets to one another during life, and avoidance of estate taxes when inheriting assets upon the death of a partner. Pension plans with many private companies restrict inheritance benefits to federally recognized spouses only. This often results in a full disinheritance of the pension benefits to a surviving partner. Federal entitlement programs such as Social Security benefits, often a primary source of retirement income, are simply unavailable to a surviving same-sex partner.

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The additional taxes, both during life and upon death, in addition to the loss of retirement income streams such as pensions and Social Security are just the tip of the iceberg. The financial challenges presented by this lack of federal recognition are widespread and add a layer of complexity to the retirement- and estate-planning process for all LGBT couples. The good news is that with the correct analysis and planning, some of these challenges can be reduced or eliminated entirely. The full benefits of marriage will likely never be realized without full federal recognition, but until that is possible, planning can go a long way.

Over the coming months, my colleagues and I will be presenting an in-depth look at many of the unique financial challenges faced by the LGBT community. In addition to presenting the issue at hand, we will help you take a look at some of the strategies available to knock down many of these financial barriers.

Stay tuned as we dig deeper into this discussion.

Wells Fargo Advisors is not a tax or legal advisor. Wells Fargo Advisors, LLC, member SIPC, is a registered broker-dealer and separate nonbank affiliate of Wells Fargo & Company, No. 33 on the DiversityInc Top 50.

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