By Darla Kashian
When those in same-sex relationships think about money, they have to give careful consideration to their marital status and family structure, as these can have a major impact on their financial future, including retirement. Same-sex couples often grapple with more financial and legal hurdles than their heterosexual counterparts, especially when it comes to their children. As a lesbian with a long-term partner and two kids, I have experienced some of these challenges firsthand, which have prepared me as I’ve helped many clients navigate the financial implications of marriage and family planning.
In June 2015, the U.S. Supreme Court ruled in favor of same-sex marriage, and now roughly 10% of LGBTQ Americans are married. Around 60% of cohabitating same-sex couples are married. The Supreme Court ruling was undoubtedly a historic victory for LGBTQ rights and for the countless loving couples who want to take that step in their relationship.
I am a pragmatist by nature and believe that, from a financial perspective, marriage makes sense for some LGBTQ couples but not for others. My partner and I have been together for 16 years, and we have chosen not to get married for practical reasons. Our decision suits our unique situation, but other couples may choose a different approach based on theirs.
Economic and financial considerations
Long before they say “I do,” I ask my clients to weigh the economic advantages versus the potential pitfalls of marriage. First and foremost, they need to be candid with one another when it comes to money. I recommend that each partner evaluate the status of their own finances and then come together to talk about financial goals and spending habits. This is an important discussion for all couples and helps ensure both partners are on the same page prior to merging their lives legally, spiritually and financially.
The second step is to speak with a tax advisor. Taxes may be the most unromantic aspect of marriage, but they are worth discussing all the same. Legally married couples are eligible to file joint federal tax returns and may even want to amend previous years’ returns. They are also eligible for capital-gains treatment accorded to the sale of a home. On the other hand, they may be subject to the “marriage penalty,” as dual-income couples might jump into higher tax brackets and start paying higher rates faster.
When it comes to Social Security, LGBTQ couples who are married are now eligible for certain spousal and survivor benefits, which can have an advantageous impact on their retirement funds. If two people want to marry later in life and are approaching retirement age, another key consideration is the difference in income between the two earners over the course of their careers. The spouse earning less may have the advantage of collecting a higher Social Security benefit.
I work with a couple, both police officers, who married as soon as they were able to legally do so because survivor benefits for law enforcement are very specific when it comes to marriage. In their situation, and given their rather dangerous line of work, it was advantageous for them to get married, but this is not always the case.
Another one of my clients has a partner with early-onset Alzheimer’s disease. Once they received her diagnosis, they met with an elder care attorney and separated all of their assets. As a result, the partner with Alzheimer’s became eligible for Medicaid and could live in a long-term care facility—a cost that would have been insurmountable without Medicaid. Ultimately, this couple would have had a different spend-down situation had they been legally married.
Family considerations
The other major consideration for same-sex couples is family construction. There are more options than ever for LGBTQ couples looking to create a family, but the endeavor can be legally complex and potentially financially draining. If same-sex couples want to start families—through surrogacy, artificial insemination or adoption—they need to become well-acquainted with the family and adoption laws of their home state.
When my partner gave birth in 2007, our daughter spent the first few weeks of her life in the hospital. During this stressful time, the medical staff could not recognize me as her parent or permit me to give any input regarding her care. I couldn’t legally become her parent until we went through the official adoption process, which took a couple of months to complete. A few years later, it took around eight months for me to adopt our son. Before he was born, a new federal law had passed mandating fingerprints and background checks for all adoptions.
Despite the red tape and high cost, I encourage LGBTQ couples, if possible, to pursue second-parent adoption, a legal procedure that allows a same-sex parent, regardless of whether they are legally married to the other parent, to adopt her or his partner's biological or adoptive child without terminating the first parent's parental rights. Doing so protects the rights of the nonbiological parent if the biological parent passes away, if the couple gets divorced or when the family travels.
States that allow second-parent adoptions by unmarried same-sex couples in some counties include Alaska, Delaware, Florida, Georgia, Hawaii, Iowa, Louisiana, Maryland, Minnesota, Oregon, Rhode Island, Texas, Washington and West Virginia. It’s important to remember, however, that even if second-parent adoption is permitted in the couple’s home state, it may not be recognized in a neighboring state.
For some of my LGBTQ clients, adopting a child is the only option for creating their families. However, the high cost can have an impact on long-term wealth accumulation, and we spend a great deal of time discussing how to finance an adoption. Legal fees, agency costs and other expenses can balloon to tens of thousands of dollars before the child can even be brought home. On the other hand, two of my clients went from having no children to becoming the proud parents of four in the space of just one year, in part because they adopted four children through the foster care system. Still, my clients have had to adjust to the economic challenges of raising their new family, including buying a larger home and planning for four college educations.
LGBTQ individuals in the United States have more rights than ever before, but the reality is that they still face greater financial and legal challenges when it comes to major life events like marriage and raising children. No matter how same-sex couples choose to create their families, planning ahead as much as possible is the key to long-term financial stability and a secure retirement.
Darla Kashian is a Minneapolis-based senior vice president, financial advisor and portfolio manager with RBC Wealth Management — U.S. She lives with her partner and their two children and serves on the board of directors for GiveMN, the Astraea Lesbian Foundation for Justice and Rimon: The Minnesota Jewish Arts Council.
