On Friday, June 24th, New York became the largest state to legalize same-sex marriage. The law will take effect on July 25th, granting marriage rights to gay and lesbian couples. While the legislation is a major milestone in the national gay rights movement, it may be financially problematic for couples who decide to tie the knot.
Although same-sex marriage is now recognized by five states and the District of Columbia, it is not acknowledged by the federal government. As a result, couples do not enjoy certain advantages offered through federal law, including the ability to share retirement benefits, file a joint tax return, protect each other’s assets from estate taxes, and benefit from federal tax breaks. While most state-based rights such as hospital visitation, emergency medical treatment, and health insurance and pension benefits will extend to same-sex couples, the discrepancy between state and federal law creates difficulties in other areas.
A major headache for gay and lesbian couples involves anything surrounding federal taxes. Because they are still required to file income-tax returns as individuals, many same-sex couples end up filling out tax forms at least four times. Filing separate federal and state returns also becomes very complicated under these circumstances. Along with taxes, issues of death and inheritance can be problematic, perhaps even more so. Same-sex spouses cannot inherit retirement plans as easily as opposite-sex spouses can because the plans are federally regulated. Also, a major consideration in estate planning is the “marital deduction” tax break, which allows opposite-sex spouses to leave each other unlimited assets, tax-exempt. However, because this is recognized federally and gay marriage is not, these assets may be taxed when left to the surviving spouse.
Though these problems are complicated, they can be addressed and usually have some sort of solution. Ultimately, the necessary extra legal and financial planning may be worth it for same-sex couples who wish to fully reap the benefits of marriage.