LGBTQ+ Marriage and Personal Finance

The LGBTQ+ community has fought long and hard to gain the same marriage rights as heterosexual men and women. It took decades before marriage equality was widely accepted, when the U.S. Supreme Court ruled in 2015 in Obergefell v. Hodges that all 50 states must recognize same-sex marriage.

More than a dozen states still have various bans against same-sex unions in their constitutions. While the high court’s decision supersedes those rulings, some of these states remain reluctant to remove the defunct amendments.

Challenges are still ahead for LGBTQ+ people, but the Supreme Court ruling is a big step in the right direction for marriage equality. Marriage opens up a whole new world of benefits—personal and financial—that previously was unavailable to the LGBTQ+ community.

LGBTQ+ Marriage Laws

The battle for marriage equality has been a long one that dates back to the 1970s. It took until 2004 before any significant changes really started occurring. That was the year when Del Martin and Phyllis Lyon became the first same-sex couple in the United States to legally get married after San Francisco Mayor Gavin Newsom ordered City Hall to issue marriage licenses to same-sex couples.

That set the stage for a marriage equality revolution in the United States. But it took a number of years—and some landmark court cases—before the movement gained significant momentum.

• In 2003, Massachusetts became the first state to legalize same-sex unions.
• In the U.S. Supreme Court case of United States v. Windsor in 2013, the court struck down the Defense of Marriage Act, which had defined marriage as solely between a man and a woman.
• In 2015, the U.S. Supreme Court lifted all state bans on same-sex marriage and ruled that all 50 states also must recognize a same-sex marriage performed in other states, in Obergefell v. Hodges.

Roughly 293,000 same-sex couples have married since that 2015 decision, bringing the total of same-sex marriages in the United States to an estimated 513,000.

Today, the LGBTQ+ community enjoys the numerous benefits that come with being married, including access to a partner’s employment benefits, joint tax filing and tax exemptions, protection from domestic violence, and more. There are still battles to be fought (e.g., pay equity and adoption rules), but getting federal laws in place to support marriage equality across the country is a major step forward.

Financial Benefits of Being Married

Marriage comes with numerous financial benefits, to which members of the LGBTQ+ community were denied access until the U.S. Supreme Court ruling in 2015. Prior to 2015, many states had followed Massachusetts’ lead and legalized same-sex marriage, but until the federal laws changed, benefits were limited.

For example, prior to the U.S. Supreme Court ruling, LGBTQ+ couples weren’t able to file joint tax returns or have access to each other’s pension plans, Social Security, or health benefits. These are not small matters.

Personal finance benefits

Being legally married opens up a number of key personal finance and tax benefits.

• Health insurance: If both partners have an employee-sponsored plan, marriage is considered a life-changing event, also known as a qualifying life event (QLE), and most employers allow changes to be made within 60 days. That allows couples to compare plans and weigh the financial and coverage benefits of sticking with their original individual plans or combining under one plan. It also opens up a special enrollment period under the Affordable Care Act, if you want to get your health insurance through that system.
• Tax filing: When deciding to file jointly or separately while married, it’s important to consider the marriage tax bonus and penalty. Combining incomes could push a couple’s tax liability into a different tax bracket, resulting in either a bonus or a penalty. Marriage bonuses can run as high as 21% of total income, while penalties can run up to 12%, according to the Tax Foundation.
• Tax deductions: If you are filing jointly, your standard deduction is exactly double ($25,100 for 2021, $25,900 for 2022) what it would be if you were filing separately, regardless of income.
• Estate and inheritance taxes: Unless you have a substantial estate ($11.7 million or more in 2021, and $12,060,000 in 2022, according to the Internal Revenue Service), this generally won’t be an issue. However, it should be noted that spouses are exempt from estate taxes, regardless of the size of the estate. Spouses are also exempt from paying any inheritance tax.
• Gift tax: The spousal exemption extends to the gift tax. If you are married, you will not be subject to any tax penalty, regardless of the amount of cash that you transfer to your spouse. For unmarried couples, the amount you can give each other in 2021 is capped at $15,000 (rising to $16,000 in 2022). (And should you be very wealthy, the amount you can give to any one person as a couple doubles to $30,000 in $2021 and $32,000 in 2022.)
• Selling your home: As a married couple, you won’t face any tax on capital gains up to $500,000 when selling a primary residence where you’ve lived for at least two of the five years prior to the sale date. For a single, that amount shrinks to $250,000.
• Beneficiaries: Often overlooked, it’s just as important to review any beneficiary-related documents, such as life insurance, wills, Social Security, and any deeds you may hold to ensure that they are updated with the most current information.
• Insurance: Once you’re married, your spouse is automatically covered on your renter’s or homeowners insurance policy. And unifying auto insurance might give you a multicar discount.

Personal Benefits of Tying the Knot

Aside from the financial benefits that marriage offers LGBTQ+ couples, there are also personal benefits.

One big benefit for LGBTQ+ married couples is qualifying for the Family and Medical Leave Act (FMLA), which allows eligible employees to take 12 weeks of unpaid leave to care for the birth of a child, adoption or foster care, or to care for an immediate family member.

Furthermore, married couples are more easily able to make medical decisions for each other, and they have visitation rights in hospitals and prisons that unmarried couples aren’t afforded.

Financial Considerations for Unmarried LGBTQ+ Couples

Marriage isn’t for everyone. Whether you think you’ve found your life partner or not, some LGBTQ+ couples choose not to tie the knot. So, what does that mean for their finances?

• Taxes: You cannot file a joint tax return. That may not necessarily be a negative. If both partners earn a substantial salary, it may be more advantageous to file separately regardless of marital status.
• Beneficiaries: You can choose beneficiaries who are not spouses on 401(k)s, pension plans, or insurance agreements. However, if you are in a committed long-term partnership, you should review those documents to ensure that the beneficiary designations for each of you are up to date. Otherwise, you could find that you won’t be eligible to receive money from these accounts down the road.
• Social Security: Unmarried couples are not entitled to spousal Social Security benefits. As an unmarried person, you are only entitled to your own benefits—or possibly those of an ex-spouse from whom you are divorced.
• Property ownership: Generally speaking, if the deed to a property is owned by one partner and the couple split, then the title nonowner has few, if any, rights to that property, regardless of how much they financially (or otherwise) contributed to the property. That generally would not be the case for married couples, so unmarried couples may want to consider drawing up some sort of legal agreement to guard against any disputes that could occur in the future. Unmarried couples also can own property jointly, which is another option to protect each other’s rights.
• Estate and inheritance taxes: In the case that one partner passes away without a valid will or trust, then the surviving partner in an unmarried relationship may not be eligible for any benefits. That would not be the case with married couples. Even with a will, the surviving partner of an unmarried couple will likely face tax bills that a widow(er) will not face.

To protect many of these rights, an unmarried LGBTQ+ couple may want to consider a living trust, which can help protect asset transfers without the messiness of going through probate. For medical decisions, unmarried couples may also want to consider a power of attorney to ensure that their wishes are followed and that their partner has the right to handle these issues.

At the end of the day, both married and unmarried LGBTQ+ couples should be prepared to discuss their finances, their life goals, and their family goals. and to work with financial experts to achieve them. According to a Prudential survey, only 19% of LGBT respondents have a will or an estate plan, compared with 26% of general-population respondents. At the same time, some 49% of LGBT respondents said marriage has simplified their financial lives.

Good news for the LGBTQ+ community: Many financial firms have created divisions focused solely on helping LGBTQ+ clients manage their finances and plan for the future.