HomePersonal FinanceSame Sex Financial Planning is Important and Necessary

Same Sex Financial Planning is Important and Necessary

Not only do Same Sex Couples have to deal with the relationships problems we “straighties” do same sex couple have another level of problems associated with Financial and Estate Planning.  Oh by the way, I just made up the word Straighties, I hope it gets picked up.

Before we start, I will let you know right off the bat, I am for the legalization of same sex marriages.  So any of the hurdles we are going to talk about are not hurdles I think should be there, but in 2010 America, are there.

What is DOMA? and how Does it Affect Same Sex Couples?

DOMA is an acronym for, Defense of Marriage Act – before you continue reading and think the evil President Bush signed into law…it wasn’t!  It was signed into law by President Clinton.  Yup your liberal dream executed the bill…oh also the same guy who more or less abolished welfare.  DOMA has two main parts, and wikipedia provides simple explanations of them,

    1. No state (or other political subdivision within the United States) needs to treat a relationship between persons of the same sex as a marriage, even if the relationship is considered a marriage in another state.
    2. The federal government defines marriage as a legal union exclusively between one man and one woman.

The first problem is obvious and creates a lot of problems.  In a recent article that I read, “Considerations, Pitfalls and Opportunities that Arise when Advising Same-Sex Couples” by Raymond Prather (American Bar Association Membership required) sums up this problem perfectly,

…if a couple is married in Massachusetts and the moves to Rhode Island, which does not recognize same-sex marriage, then Rhode Island will not provide a forum for divorce…Most States allowing same-sex couples to divorce have residency requirements for jurisdiction over the divorce.  The only way a couple in this situation can divorce is for one person to move to a state recognizing the marriage

Problem Number 2 is easier to understand…none of that jurisdiction garbage.  According to that same article by Mr. Prather, there are 1,138 federal benefits of marriage, ONE THOUSAND ONE HUNDRED AND THIRTY-EIGHT BENEFITS! Wow.

Now that we understand DOMA and its two sections how does it affect Same Sex Financial Planning?

Same Sex Couple Financial Planning

I truly believe the basics of financial of planning are always the same.  Spend less than you earn, keep good records, etc. etc. and I don’t think it matters if you are two Mr., two Mrs., or somewhere in between.  But what about when it comes to two topics, Life Insurance and Retirement Accounts?

Same Sex Couples and Qualified Retirement Plans

Retirement plans can get tricky with same sex couples.  When a ‘surviving spouse’ inherits most retirement accounts they actually can roll over that amount into their own IRA and then still delay requirement minimum distributions until 70 and 1/2.  This is could lead to a problem since under DOMA a same sex couple can’t have a surviving spouse.  So what do we do?

We make sure they are set up in the best way possible.  So we would make sure each surviving same sex spouse is named as a beneficiary (or a trust for the benefit of that surviving same sex spouse) this way the surviving same sex spouse can at least stretch it over his or her lifetime.

Same Sex Couples and Life Insurance

Life Insurance for Lesbian, Gay, Bisexual and Transgender Couples can get very complicated very quickly if you aren’t working with someone who understands the issues.  Since in the eyes of most states and the federal government these couples aren’t married then where is the insurable interest?

The easiest way to fix this is to use an Irrevocable Life Insurance Trust (ILIT).  An ILIT, very simply put, is a trust which is used to hold life insurance.  This may or may not work depending if the insurance company reads the trust document closely.  Another option would be to have one spouse purchase the policy on themselves and then transfer the policy to the partner, but this could have gifting issues as well as insurance issues associated with transferring the policy soon after it was created.




  1. I’m with you Evan, legalizing gay marriage just seems like the right thing to do.

    Bigger problems are things that pass by virtue of marriage – like Social Security survivor benefits, pensions that only pay to the spouse after the employee dies, etc. Not to mention when we talk about estate planning and the unlimited marital deduction.

    • Its true the unlimited Martial deduction is HUGE especially when you look at gifting and trying to even out the partners’ assets

  2. Great Article. Same-sex couples have similar problems to those of un-married heterosexual couples. When dealing with married couples, the laws regarding insurance, estate planning, and taxes are clear. Also, in the event that a couple decides to break up, the divorce courts and divorce laws provide both a forum and rules for ending the relationship, dividing the property, and deciding child custody. With same sex couples and unmarried heterosexual couples, I have had to do three lawsuits (at triple the cost) to handle what I could have done in a divorce case.

  3. To pick up a tangent, I’m one of those strange people who thinks that unmarried couples – whether straight or not – should not have the same rights as married couples.

    Not because I believe that married people should be rewarded or similar for being married, but because I believe that there should be a spectrum of choice.

    i.e. I should be able to cohabit with someone without us both being financial liable in various ways for the other.

    If we want more commitment/liability, then we should marry. If not, we should be left alone.

    • So would you go with:
      No Legal Relationship
      Committed Relationship
      Legal Marriage

      Each with varying legal duties/liabilities?

  4. Hi Evan, I like the approach of this article. Very important points! It’s going in my round up this week! Best, Barb (thanks for the help on the yakesie site)


Please enter your comment!
Please enter your name here

Related Articles

Recent Comments