“So I’ve met my future husband, I’ve found the place for our dream wedding. Financially speaking, should we run off to one of the states where it is legal to get married and tie the knot?” This was the beginning of a conversation I recently had with a gay couple who are both friends and clients of mine.
First, I gave a big resounding yes to the wedding. But there was quite a bit more to think about and discuss when it comes to the pros and cons of making the nuptials official with any state government.
I often hear from many gay-married couples that they just assume they now have all the rights and protections that their straight counterparts take for granted. But sadly this isn’t the case. In a purely financial sense, marriage as a gay couple really has a lot more cons than pros.
Same-sex marriage isn’t equal to “marriage” in the eyes of the federal government, which unfortunately is where most of the benefits of marriage are granted. What this means is that you are getting married only under state laws — which brings financial consequences.
For many gay couples, getting married under state law is going to make both of your tax bills higher while also expanding the cost of having your taxes done. Here in California, your tax professional will have to complete multiple returns. This will often mean you pay a multiple more for getting your taxes prepared.
The extra cost of preparing taxes, though, will often pale in comparison to the extra taxes you likely owe, especially if you are both high earners. Think of it as stacking two incomes on top of each other, which means more income lands may higher tax brackets. That causes you to move closer to income thresholds, thereby putting out of reach various deductions you may be accustomed to taking.
Mortgage interest deduction is one area where people may find trouble. This tax deduction begins to phase out at $166,000. For the couple who asked me about getting married, the few thousand dollars lost in extra taxes wouldn't make or break their decision. But for many couples, who might already be underwater on their houses or simply feeling "house poor" because of a high mortgage payment, any extra expense is unwelcome. Plus, a variety of smaller deductions exist that are either reduced or not allowed for people at increasing income levels.
Merging finances for any couple is hard, but if acting on false information, you are likely to make decisions that aren’t always in your best interest. That’s all the more reason it’s important to point out that clients who are not getting correct or up to date advice on the intricacies of tax law for “gay marriages” may encounter some tax issues down the line. As always, consult with the appropriate financial professionals (financial planner, estate planner, and tax professional) before making major financial changes.
DAVID RAE, CFP® is a retirement planning specialist with Trilogy Financial Services, specializing in the needs of the LGBT community. Follow him on Twitter @davidraecfp or via his website, www.davidraefp.com.
Securities and advisory services offered through National Planning Corporation(NPC), Member FINRA,SIPC, a Registered Investment Advisor. Trilogy and NPC are separate and unrelated entities. NPC is not engaged in the rendering of tax or legal advice.