Same-Sex Couples Are Marrying Less: What That Means for Their Finances

The marriage boom that bloomed after legalization appears to be cooling off. However, same-sex couples who don't marry are missing out on a lot of serious legal and financial protections.

By Daniel Fan, J.D., LL.M., CFP

published 5 January 2018

in Features

(Image credit: NADINE STENZEL, WWW.ENINELLA.DE)

A landmark Supreme Court case in 2015 ruled once and for all that same sex-couples have a constitutional right to marry. But while marriage rates for LGBT couples jumped the year after the ruling, recent polling from Gallup indicates that they may be leveling off.

Do Not Let Money Ruin Your Marriage

Some who have been in long-term relationships (before the prohibition against same sex-marriages was lifted) believe that little will change if they get married. Others see marriage as an outdated institution, with financial burdens and legal strings. There are, however, MAJOR tax and property reasons why those LGBT couples should rethink that stance:

Taking Leave to Care for a Spouse

Under the Family and Medical Leave Act (FMLA), an eligible employee can take unpaid, protected leave to care for a spouse with a serious health condition. (Children and parents also qualify.) Courts have ruled this protection to be unavailable if the partner is unmarried. If an unmarried partner takes temporary leave to care for their ailing partner, they may risk losing their job.

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Leaving a Relationship from a Long-Term Partner

If a couple buy property, such as a house, and then separate, the situation becomes much more complicated if they are unmarried. The division of the property will then depend on how exactly it is owned.

If it is owned jointly (either as joint tenants or as tenants-in-common), the house will likely be split according to ownership percentage on separation. If the property is owned and titled in the sole name of one of the partners, and they separate, it could be extremely difficult for the non-titled partner to retain any rights to the property, even if both partners contributed to the mortgage and maintenance. This would not generally be the case if the couple were married or had a legal agreement.

Death of a Partner

If a couple are not married, and one of them dies intestate (i.e., without executing a valid will or trust) the surviving partner is not afforded the same rights that they would have had they been married. In fact, they may be left with nothing.

States have their own laws regarding how exactly an estate is distributed, but in general, property is distributed first to a surviving spouse and children, then to extended family. If they were never married, however, partners could be left out in the cold, even if they were together for decades. For unmarried couples in long-term cohabitating relationships, it’s critical to have a will or other estate-planning documentation, ensuring that the surviving partner is provided for.

Social Security and Medicare benefits may be available to spouses (and in some cases, ex-spouses) and widows/widowers of workers. Though Social Security does recognize some Non-Marital Legal Relationships (NMLRs) as technical marriages for benefit purposes (e.g., certain domestic partnerships, civil unions, etc.), the determination of what constitutes a valid NMLR can be complex, time consuming and may necessitate the services of an attorney. Difficult though it may be, it may very well pay off, as the benefits available to someone based on their partner’s earnings record may be better than those from their own earnings.

The $10,000 Question: How to Cover Child Care

Spousal Rollover IRA

If the owner of a traditional IRA or a qualified retirement plan is married, he or she is usually instructed to name his or her spouse as a beneficiary of the account. This way, if one of them dies, the surviving spouse can roll over the account into his or her own spousal IRA, instead of into an inherited IRA for non-spouse beneficiaries. Generally, the latter are funded with pretax dollars, so any amounts distributed or withdrawn are subject to ordinary income taxes for the entire amount. This tax is owed and payable by the beneficiaries.

If the account is an inherited IRA (or left to a non-spouse), then the survivor would need to take distributions either immediately in a lump sum, over five years, or as annual distributions over their lifetime. A surviving spouse, on the other hand, has another option: They can delay the payout of these funds, and allow the accounts to grow over time. With a spousal IRA, surviving spouses can treat the IRAs as their own, and delay distributions until they reach age 70½.

Adoption Rights

If a same-sex couple who are not married would like to adopt a child (either jointly or in a second-parent scenario), they may find barriers to doing so. Being married, especially after the legal recognition of same-sex marriages, removes many of these barriers.

For joint adoptions, there generally are no specific prohibitions against unmarried couples being able to adopt. Nevertheless, adoption agencies create their own rules (as long as they do not conflict with state laws), which are often unfavorable to unmarried couples. This could result in the couple having to explain why they are not married, and demonstrate that they have a stable household. They may have a longer wait time, or have less flexibility in the desired age or ethnic background of the child.

Spousal Medical Coverage Under COBRA

Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), both spouses (employee and non-employee spouses) are deemed "qualified” beneficiaries and have the right to continue group health plan coverage if a qualifying event occurs, like leaving or being terminated from employment.

Some states, like California, allow couples to enter into formalized domestic partnerships, entitling them to many of the same state rights given to legally married couples. They will likely not, however, be considered qualified beneficiaries under COBRA, making people unable to continue group health plan coverage in most cases unless the employer designs its medical plan to provide COBRA- like benefits.

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Michelle Nguyen, a Certified Financial Planner and vice president of First Foundation Inc., contributed to this report.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Daniel Fan is a Partner in the Orange County office of Cerity Partners, LLC. He is an attorney with over 20 years of experience as a high-net-worth wealth planner and specializes in evaluating and optimizing clients’ financial situations to help them obtain their financial goals. Dan has extensive experience in areas such as income and estate tax, business succession, risk management/insurance and retirement planning.