The Importance of Comprehensive Wealth Management for Domestic Partners
Woody Derricks, CFP®,
Accredited Domestic Partnership AdvisorSM
Partnership Wealth Management
For gay, lesbian, bisexual, and transgendered individuals, reaching financial goals frequently present unique challenges. You may be aware of some of the issues that can affect you and your loved ones’ financial well being – others may come as a surprise. One thing is clear: when it comes to managing your wealth, it is critical that you understand your options and opportunities – as well as potential obstacles.
If you are in a relationship, the first step is to include your partner. Because many domestic partners maintain separate bank accounts, they feel as though they should plan for the future as individuals. I ask my clients: Do you own your home together? Would you like to pass on a portion of your estate to your partner? If your partner became disabled, would you provide financial support? If the answer to any of these questions is yes, then you may want to evaluate your financial future as a couple.
Disparities in age present another hurdle for domestic partners. Frequently, partners may have a difference of 5, 10, 15 or more years between them. Age affects the way we perceive risk with our investments and how we prepare for retirement. Younger investors are more likely to accept ups and downs in the market as they have a longer time horizon. Additionally, they have more time to accumulate funds for their retirement years. For those who find themselves rapidly approaching retirement or who have already retired, the focus shifts from building for retirement to protecting those assets they have accumulated. Balancing the need to grow with the need to protect can be a daunting task.
Other areas of concern include insurance and estate planning. You should ask yourself several questions: When I pass away, will my partner be entitled to my pension benefits? How can I best protect my partner and myself while I am alive and after I have passed away? As we know, family members do not always look favorably on the relationship and may desire to have your assets for themselves.
Should you get married? This question isn’t so easily answered from a financial perspective. What they don’t tell you when you get your marriage license and walk down the aisle is that your financial picture will change. In many ways, you’ll see things become simplified and more beneficial. In other ways, some of your finances may become more complex and you may wind up paying more for things-such as your taxes.
The Benefits of Saying “I Do.”
Tax Filing – Filing jointly could lower your income taxes, especially if one spouse earns much more than the other. It can also be easier to file jointly, which isn’t a bad thing.
Retirement Plans and Social Security – For legal spouses, it’s simple to roll over 401Ks, IRAs, and other retirement plans when one spouse passes away. When it comes to Social Security, spouses can choose to take their benefit or half of a higher-earning spouse’s benefit when they retire – depending on which one is greater. They can also receive the larger benefit when one spouse passes away.
Estate Taxes – A married person may leave assets to their spouse without generating federal estate taxes.
Gift Taxes – Married couples can avoid gift taxes and take advantage of something called “gift splitting,” where they can split a gift’s value 50-50 when passing it on to a third party.
Health Insurance – If one partner has health insurance through work, a legal spouse can be part of that plan.
Military Assistance – The military offers many perks to legal spouses – like housing and pension survivor benefits.
Next-of-kin – While wills and health care proxies are always a good idea, legal spouses enjoy next-of-kin status in the case of an emergency or when assets must be distributed.
The Benefit of Saying “I Don’t.”
While there are many advantages to getting married, there is one big disadvantage that many couples overlook: taxes. Above, we mentioned that some same-sex couples save money when they are finally able to file jointly as a married couple. Unfortunately, many don’t.
If you and your partner earn about the same annually, there’s a good chance that you might not only hit a higher tax bracket when you file jointly, but you may also hit a level where you begin to lose out on tax benefits – like contributing to Roth IRAs or the child tax credit. Have your CPA run the numbers to see if you and your partner could suffer any marriage penalties.
It’s a Personal Decision.
Before walking down the aisle, consider what impact it might have on your wallet. Although being legally married offers some considerable advantages, it could also have a significant impact on your financial situation. Consult with your CPA, your financial advisor, and your lawyer before you make any binding decisions – and make sure that “I do” is right for you.