The Supreme Court Is Deciding On DOMA. How Can LGBT Couples Prepare?
It is widely expected that this month, the Supreme Court will release a decision regarding the constitutionality of the Defense of Marriage Act (DOMA). It is a decision highly anticipated not just among constitutional scholars, but among the entire LGBT community and supporters of same-sex marriage across the country.
DOMA defines marriage (at the federal level) as a union between a man and a woman; as such, it excludes same-sex spouses from tax, healthcare and estate planning benefits that are given to heterosexual spouses.
“Every aspect of a person’s financial life, legal life, and their rights their benefits — DOMA pervades all of that. It’s everything that’s recognized and not recognized at the federal level,” explained Lisa Siegel, a senior wealth planner for Wells Fargo’s Private Bank. Siegel is also an attorney and has helped many LGBT clients navigate this tricky legal and financial terrain.
Siegel says there is not much a same-sex couple can do in advance of the Supreme Court ruling, but there are many things to start considering and documents to start gathering in case DOMA is repealed. Here are some of the areas that require particular attention:
Tax planning. Siegel had advised her own clients to file an extension for their 2012 taxes, in the event DOMA is upended and a same-sex couple can select “married filing jointly” on their federal tax return. For same-sex spouses who didn’t file an extension, she says it’s easy to go back and file an amendment (the IRS has an FAQ and the amendment form here), and the IRS accepts amendments for the past three years. However, depending on the salaries of the spouses in question, Siegel says that filing jointly might not mean owing less money to the government. “You might owe more because of how much money you earn. You have to then have an accountant run a projection to see,” she said.
Estate planning. Heterosexual spouses have access to the unlimited marital deduction, which means that husbands and wives can transfer assets to and from each other (during life and after death) with little or no tax. Under DOMA, same-sex spouses cannot do this. “If this section of DOMA were to be repealed, this would entirely change their estate planning,” Siegel said. “In many cases, [a repeal] would require them to revise their estate plan.” Siegel recommends consulting an attorney with specific experience in LGBT estate planning, or a financial planner with an Accredited Domestic Partnership Advisor (ADPA) designation.
Beneficiary designations. Siegel noted that the estate plan isn’t the only document that would need to be revised: living wills, healthcare proxies, life insurance policies and retirement plans are among the documents that would need to be updated so that same-sex spouses can list each other as their primary benefactor. “[DOMA] affects spousal rollovers — think about IRAs and 401(k)s,” she said. “On qualified plans, there’s no automatic right for [a same-sex] spouse to receive access.”
Wedding planning. Many of the financial and legal ramifications of a DOMA repeal would primarily affect couples who are already married (in states allowing same-sex marriage), but Siegel noted that couples for whom a favorable DOMA ruling might inspire a wedding have their own set of considerations. Primarily: the assets they’d bring to a marriage. “Because marriage has not been an option and many couples have been together for many, many years, as have been some of my couples, we’re finding that these couples are getting married and have pretty much had a lifetime together. They’re coming into the marriage with significant assets,” she said. For these couples, Siegel recommends a prenuptial agreement. “It could be a potentially unpleasant exercise. But important!”
Finally, if the court rules to uphold DOMA, Siegel emphasized that it is still worth it for same-sex couples to meet with their attorneys and financial advisers to make sure their financial plans — and especially, estate plans — are up to date.
“In general, estate plans should be looked at every few years anyway,” Siegel said. “It’s not a bad idea to go back to advisers and say, now what?”
