Gay couple on a walk with their son and daughter

July 25, 2018

5 Essential Financial Planning Considerations for Same-Sex Couples

In 2015, the U.S. Supreme Court recognized the validity of same-sex marriage in a landmark ruling that provided considerable clarity and security to LGBTQ couples. But while it established marriage equality, the ruling did not solve every financial challenge that these couples face. As with any marriage, simply tying the knot doesn't solve financial problems or make them disappear.

That's why it's important for all couples to talk about their finances and expectations to prevent conflict.

Common Financial Issues Same-Sex Couples Might Face

Here's a look at five broad areas where same-sex couples often encounter unique situations that need to be considered in their financial plans.

Pre-Nuptial Agreements

As in straight relationships, prenuptial agreements are critical for outlining what happens to assets brought into the marriage.

However, even though estate planning now is pretty much identical for same-sex couples as others, Wolberg said that marriage equality has changed the dynamic for many same-sex couples who have been in long-term relationships.

"Do you all of a sudden bring up a pre-nuptial agreement before you get married to somebody you've been with for 10 years?" he asked. "You've been happy for 10 years and now, because you can get married, you want to change the relationship and add a pre-nup. For some couples, that's what leads to a break up."

Determining When A Relationship Began

When it comes to financial benefits, such as Social Security and retirement distributions, a couple's marriage date is important. But for same-sex couples for whom marriage only became an option in 2015, the actual marriage date may not reflect a relationship that has endured for decades.

Prior to the Supreme Court decision, many same-sex couples worked out cohabitation or domestic partnership agreements that addressed financial concerns and took state and local rules into account, noted Alan Wolberg, a senior wealth planner at City National Bank. Now that marriage is an option across the country, "It's two different relationships. It's the 'before marriage' and the 'after marriage,'" Wolberg said. He added that as with straight couples, same-sex spouses are well-advised to continually update their legal agreements to preserve their separate and joint assets.

This becomes particularly crucial as couples are dividing up accumulated property in the event of a divorce, said M. V. Lee Badgett, an economics professor at the University of Massachusetts Amherst and a Williams Distinguished Scholar with the Williams Institute on Sexual Orientation Law & Public Policy at the UCLA School of Law. How property is divided after a long-term relationship ends depends on when and where a couple has lived, if they were married or in a domestic partnership in a state that recognized their union, and what individual jurisdictional policies are.

Family Planning Expenses

When it comes to creating families, a study showed that same-sex couples are four times more likely to adopt a child and six times more likely to become foster parents. It estimated that 16,000 same-sex couples are raising more than 22,000 adopted children in the United States.

The cost of adopting a child can be up to or more than $40,000. For couples that go the surrogacy route, fees can run about $150,000. On top of those large expenditures, there may be challenges from states that don't allow same-sex couples to adopt or foster children. In those cases, couples often choose to incur the cost of going to another state, setting up temporary residency and getting matched with a birth family, agency and attorney there.

Gender Pay Gap for Female Couples

Same-sex couples are 1 percent more likely to be employed than opposite-sex couples and singles, and much more likely to have a college education, according to the Williams Institute. And research shows gay men and lesbians now earn more than their straight counterparts — the mean income for same-sex couples is $54,000; it's $8,000 less for straight couples.

But overall, men continue to earn more than women, so male couples have inherent earnings advantages over female couples.

“Women are still earning less than men. There are different expectations about what women's careers should look like ... so two gay men have the potential for doing better" than two women in a same-sex marriage, Badgett said.

Even if two females within a relationship are high-earners, they're still likely to make less than their male counterparts. That's why it's especially important for women to create a financial plan that counteracts the wage gap and prepares them for their long-term goals, like retirement.

Pitfalls in Healthcare Policy

Under the 2015 Supreme Court ruling, employers who offer health care and other benefits to heterosexual spouses must offer them to all spouses.

But there's been some resistance. For example, the city of Houston has been embroiled in a legal battle over same-sex spousal benefits since 2013. While the question is being decided by the courts, the city has continued to allow benefits for the spouses of gay city employees, including health and life insurance, but there's still a question as to what the law will ultimately require.

This uncertainty may pose a costly hurdle for some same-sex couples. Creating a financial safety net that accounts for the rising cost of healthcare can be a smart move, Wolberg said.

Same-sex couples should consider discussing these and other unique challenges with their financial advisors so they can help draft financial plans that meet the couples' long-term financial goals for retirement and beyond.

And, as in any relationship, having those hard conversations about money is key. "Make sure you're communicating with each other, and that you're both on the same page," said Wolberg.

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This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.

City National, as a matter of policy, does not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations and readers should seek professional advice.

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