It's been a little over a year since the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act. This now-defunct provision stated,
In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word `marriage' means only a legal union between one man and one woman as husband and wife, and the word `spouse' refers only to a person of the opposite sex who is a husband or a wife." [United States v. Windsor]
By doing so, the court gave married same-sex couples access to most of the federal rights and benefits that married heterosexual couples enjoy. Many of these touch taxes, housing, Social Security and estate planning – essentially a buffet of financial planning and investment issues.
In a study released on the one year anniversary of the DOMA decision earlier this summer, however, Wells Fargo found many lesbian, gay, bisexual and transgender investors are struggling to make sense of the quickly changing legal landscape and their new financial options. Indeed, 83% of LGBT investors surveyed said they do not fully understand how federal and state laws apply, including 67% of those in legal same-sex marriages. Maybe that's not surprising, considering the experts are still struggling to understand it all. But what was surprising was that 40% of respondents mistakenly believed that the federal government would treat a state sanctioned civil union or domestic partnership just like a marriage, which is not the case.
“We have seen a monumental shift in planning opportunities for LGBT couples,” notes Kyle Young, a certified financial planner with Wells Fargo Advisors who focuses on serving the LGBT community. “While LGBT couples now have the ability in several states to marry – which is of course a tremendous accomplishment – there are still many many couples that live in the large majority of states that still do not offer same-sex marriage, who are really facing a wall of challenges when it comes to financial and estate planning.”
This is in part due to the fact that while being married somewhere – including a foreign country – makes a couple of any orientation married in the eyes of the federal government, it does not make them married in the eyes of most states. When the Supreme Court ruled on Section 3 of DOMA, it did not touch Section 2 which gives states the power to define marriage within their borders.
Same-sex couples can currently marry in 19 states and the District of Columbia. That means 44% of Americans reside in marriage equality states, according to The Human Rights Campaign. There are 10 more states issuing gay marriage licenses today than there were when the court issued its decision (cases challenging gay marriage bans are working through the court system in every state where bans remain). Nevertheless, with 31 states yet to legalize gay marriage many couples are stuck with a confusing mash-up of rights and restrictions. Couples who do not reside in marriage-recognition states must file their state taxes as singles and if one spouse dies leaving behind significant assets the surviving spouse will need to pay state inheritance taxes from which spouses are generally exempt.
In this context it is not surprising that 62% of LGBT investors surveyed told Wells Fargo their financial needs as a couple are different from those of heterosexual couples. Such gaps in equality also shed an interesting light on the fact that 36% of LGBT investors who are or want to be married said financial and legal rights are the most important reasons to get married, compared with 8% of people in the U.S. overall. Only 54% of this LGBT group say commitment and love are the most important reasons to get married, versus 80% overall.
“For so long LGBT couples were denied access to the ability to marry. Now that we have the ability to marry, we are looking at all aspects of why a couple should enter into a marriage before doing so,” says Young.
Despite differing views on why to marry, in another survey Allianz found that families led by same-sex couples report nearly identical levels of financial confidence as families led by heterosexual couples. When asked to describe their financial situation 50% of same-sex families with kids described themselves as either wealthy/affluent or financially comfortable, compared to 52% of married heterosexual couples with children, which Allianz dubs “traditional families.”
These findings come from Allianz’s Love|Family|Money study which the financial services company undertook when it realized a growing number of its 83 million clients’ families didn't look like Leave It to Beaver’s. In fact, only 19.6% of U.S. households today can be defined as traditional nuclear families compared to 40.3% in 1970.
Allianz surveyed 4,500 Americans for the study, including 1,000 people from the general population and an additional 500 from each of six family cohorts: single-parent families, blended families, older parent with young children families, multi-generational families, boomerang families and same-sex couple families. Modern families by and large expressed feeling slightly less financially secure than their traditional counterparts did – this was not the case for same-sex families.
In addition to describing themselves as either wealthy/affluent or financially comfortable at a rate similar to traditional families, same-sex families reported a mean household income of $113,700, compared to $112,700 for traditional families and $95,200 for other modern families. (It’s worth noting that respondents needed to be ages 35 to 65 with a household income of $50,000 or more.)
Same-sex couple families with kids and traditional families reported equally high levels of comfort discussing family finances with their spouse or significant other. One area where they differed was how they manage finances. While 80% of traditional families surveyed fully combine their finances, 60% of same-sex couples do. And while only 5% of traditional families keep their finances completely separate, 18% of same-sex families do.
“Despite the fact that they may be perceived as the most ‘untraditional’ among all family types,” wrote Allianz in a release on its findings, “same-sex couple families with kids are emerging leaders when it comes to success with their finances.”
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