What the DOMA Ruling Means for Same-Sex Couples' Finances

Edith Windsor Supreme Court Washington case challenge constitutionality Defense of Marriage Act DOMA
Chip Somodevilla/Getty ImagesThe Supreme Court sided with Edith Windsor, 83, (left) who challenged the Defense of Marriage Act, saying the law denied her same-gender union the financial benefits of marriage.
By Blake Ellis

The Supreme Court's decision Wednesday to strike down the federal law that limited marriage to a man and a woman isn't just a civil rights victory for same-sex couples across the country -- it's a financial win for many of them.

In a 5-4 ruling, the court ruled that the 1996 Defense of Marriage Act is unconstitutional because it denies married same-sex couples the same benefits that heterosexual couples receive.

The court ruled that DOMA singled out same-sex marriage and treated same-sex couples "as living in marriages less respected than others."

Married same-sex couples in a dozen states and the District of Columbia will now be eligible for more than 1,000 spousal benefits previously off limits under DOMA.

Income tax: Same-sex couples will now be able to file their federal income taxes jointly. For many couples -- especially those where one person earns significantly more than the other -- merging incomes for tax purposes will result in big savings.
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Janet and Janet Emery-Black, who married in California in 2008, estimate they could save more than $10,000 a year in income tax by filing jointly. Because one is retired and the other works full-time, combining incomes would put them in a much lower tax bracket.

The Emery-Blacks are also hoping to take advantage of a protective refund claim by amending their taxes for the past three tax years to get back some of the extra income tax they paid as a result of DOMA.

The couple has already amended their 2009 tax returns and they plan to file protective refund claims for 2010 and 2011. If the IRS approves those claims they expect to receive a total of more than $30,000 in refunds for the last three years.

Other couples won't be helped by filing jointly, however. Kevin O'Leary and Brian Esser, from New York City, will actually end up owing roughly $5,000 more in income tax per year because they bring in similar salaries.

Gift tax: Same-sex couples will also be exempt from gift tax when transferring assets to each other. Under DOMA, any gift between same-sex spouses of more than $14,000 began adding up to a lifetime limit of $5.25 million -- after which a 40 percent tax was assessed. Opposite-sex couples have never been subject to that tax.

Joshua Hatfield Charles and Dixon Charles, from Rockville, Md., were married five years ago. They paid more than $8,000 for attorneys and accountants to help avoid a huge gift tax for transferring assets to each other. If DOMA hadn't been overturned, they estimate they would have spent another $7,000 to $9,000 on legal fees and taxes.

Same-sex couples who divorce can also be subject to the federal gift tax when dividing assets.

Health insurance: Some couples also pay extra income tax on the medical benefits one partner receives through the other's health insurance plan.

The Emery-Blacks, for example, will save at least $1,000 in income tax each year by not paying tax on these spousal benefits.

Meanwhile, many federal employees will likely be granted spousal benefits like partner health insurance.

For Joanne Pedersen, a retired federal employee from Connecticut, the ruling could mean that her retirement plan will finally extend health benefits to her wife, Ann Meitzen. It would be a big boost: Meitzen suffers from lung illnesses and spends half of her monthly Social Security benefits on medical expenses.

"Financially we're not doing great," said Pedersen, now 59. "We were looking forward to a nice retirement where we would both be doing well, but that's not happening."

Death benefits: Same-sex couples will now be eligible for the same federal tax treatment and Social Security benefits as opposite-sex couples in the event that one spouse passes away.

This means a surviving spouse will be eligible for Social Security survivors benefits and will be exempt from the 40 percent federal estate tax on assets exceeding $5.25 million.

What the decision doesn't do: While many of the specifics of the Supreme Court's ruling are still fuzzy, it appears that couples must be married at a state level for all of these federal benefits to apply -- meaning domestic partnerships and civil unions don't qualify, Young said.

Currently, same-sex marriage is legal in 12 states and Washington, D.C., while seven states grant domestic partnerships and civil unions.

"[The Supreme Court is saying,] 'Yes, you can have these benefits, but up it's up to each state whether they are even going to recognize these couples in the first place,' " said Kyle Young, a financial adviser and vice president for Wells Fargo Advisors. "It's still going to leave us in the position where there's [still] a patchwork of marriage equality."

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What the DOMA Ruling Means for Same-Sex Couples' Finances
Mindel says hiding details of an inheritance or trust fund is one of the most common lies he's seen in clients.

It's not a wise move, especially since it's easy enough for a partner to find out if they pay attention to your tax returns, Mindel points out.

Unless you also plan on also lying to the IRS about the trust fund, you'll have to report your monthly checks with the rest of your taxable income.
A California woman made headlines when her ex-husband sued her over lottery winnings she hid from him while they were still married.

Years later, he took her to court and wound up walking away with 100 percent of her earnings.
"Now, more and more states across the country are imposing penalties for spouses that fail to properly disclose financial information to their spouses," Mindel says.
If you've got money that's off the books, such as cash you're earning from a freelance or part-time job, it's not OK to stash it in a secret account your partner doesn't know about.

"People get pissed when they find statements about hidden accounts," says family law attorney Jennifer Deniger.

"A lot of married couples don't understand the concept of joint property and they think that if they get divorced, then anything they have in a solo account is theirs to keep. But the joke is on them because the [spouse] still gets half."

Lying about job loss often occurs because spouses are either ashamed of their failure or are convinced they'll be able to nab a new gig before their partner notices.

"We don't see it very often, but you hear about people that are shocked to hear that their spouse has been covering up a job loss," Mindel says. "They leave early to go to work but don't have a job to go to."

Mindel says any vice that sucks up disposable income -- like frequent casino trips or betting at the race track -- is a danger to marriage.

"We've had women [clients] who've been addicted to male strippers and spent all their money on clubs," he says.

"They end up putting financial pressure on their families because of their addiction."

Partners often hide credit card statements or past debt from their spouse, telling themselves that they'll be able to pay off their debt before it balloons.

"I find that most people have no idea how much their partners have in student loan debt, so that can be iffy when the payments need to come out of your joint income," Deniger says.

Before you tie the knot, sit down and exchange a credit history with your partner, Mindel recommends. That way, you're both on equal footing.

If you're uncomfortable coming clean about your debt, you're probably better off putting off marriage altogether.

Couples should treat marriage like a business merger, Mindel says, especially if you're planning on drawing up a prenuptial agreement.

"You've got to know the value of both companies," he says.

Plus, if you ever get divorced, a court can penalize you for not disclosing your full income and award your ex more spousal support.

If you've got kids you're not telling your spouse about, you could end up in court or worse -- jail, says Money Talk Matters CEO Taffy Wagner.

"I know of a situation where a husband did not tell a wife that he had previous children and was not paying child support," Wagner says. "The [new] wife ended up being sued because they had a joint account."

Andrew Scharge, founder of Money Crashers, says this is an especially easy lie for a stay-at-home spouse, who can cover up bill collector mail and phone calls.

"The difficult result is the loss of their home, which will come as a shocking surprise to the spouse who was unaware of their financial situation," he says.

"It can be a challenge to deal with a lying spouse, but ultimately, if the couple does not deal head-on with these issues of trust by implementing some money management tips for married couples, the couple will very likely separate or divorce."

Compulsive spending habits can wreck a marriage, especially if they're kept under cover. Some partners go as far as to send shipments to friends' houses or the office as a cover-up.

"Compulsive spenders lie about the amount of money they spend, how often they spend money and what they spend money on," says Paul Hokemeyer, a licensed marriage and family therapist.

"It destroys relationships because the non-spending partner typically has no clue over the extent of the spending that's going on and wakes up to a bankruptcy or unmanageable debt that in turns makes them feel betrayed, taken advantage of and humiliated."

Financial Ramifications of Same-Sex Marriage Ruling
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