Part IV: How US v. Windsor Affects LGBT Clients: Health Insurance & Financial Planning

Business man reading newspaperWhile the lawsuit that led the Supreme Court finding the Defense of Marriage Act unconstitutional, United States v. Windsor, largely regarded tax laws related to inheritance, there were a number of additional implications the ruling had on same-sex couples across the country.

Legally recognized same-sex couples are now eligible for opting in on their spouses’ health care plans. This is a major change, as more than 80 percent of of employers extend their health care plans to the spouses of their employees, according to a 2012 survey by the Society for Human Resources Management, as cited by Prudential’s report, Financial Planning Considerations for Same-Sex Couples After Windsor. However, before DOMA, only 30 percent offered such benefits to same-sex domestic partners.

There are further ramifications for the new laws. Now, spouses who choose to be covered by their partners’ plans can pay their premium with pre-tax dollars, an option that had not been available to same-sex couples previously. This has the potential of saving same-sex couples thousands of dollars each year in federal taxes that they once were required to pay under DOMA. Now, they enjoy the same tax advantages as any married couple.

DOMA and state policies

While these insurance policy changes are important steps in the financial well-beings of same-sex couples across the country, DOMA had major implications when it comes to where those couples could live and legally enjoy the full benefits of their marriage.

The fall of DOMA shook laws on a national scale and forced the hands of many state laws. However, it wasn’t until the IRS and the Department of Labor made a ruling in August 2013 that same-sex couples who were legally married in a state that recognizes such unions were legally treated as married couples for federal tax reasons even if they resided in a state that does not.

When it comes to health insurance, this means that any individuals who were taxed on imputed federal income for their health insurance coverage have the option to file an amended tax return and claim a refund, assuming they do so within three years of their original filing or two years after the tax was paid. It’s worth noting that such benefits do not extend to civil unions or domestic partnerships.

Redirecting funds

Since same-sex married couples now have the ability to benefit financially where they previously were not, they may want to take a second look at their financial plans. For example, these couples now face the same issue as opposite-sex couples when it comes to financially preparing for the unexpected loss of a spouse, and they may want to reassess their life insurance needs.

Life insurance can not only provide income in a time of financial loss, but it can also help fund the retirement of a spouse or help pay for dependents’ education. Now is a great time for same-sex married couples to sit down with an advisor and reassess their financial plan.

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