Same-sex marriage, signed into law Thursday in Maryland, will bring significant changes to gay and lesbian couples here. But to their personal finances, maybe not so much.
"They are not going to see a huge immediate change in finances," says Mark Scurti, a Towson lawyer who specializes in counseling same-sex couples. The big difference, he says, will be in estate planning and the elimination of a hefty inheritance tax.
But those are state issues. The federal government doesn't recognize same-sex marriage, so these couples won't enjoy many of the benefits of straight couples. Most notably, gay spouses still won't be entitled to Social Security benefits based on a partner's work history.
The fate of same-sex marriage in Maryland, however, isn't settled. Opponents are expected to gather enough signatures to put the issue before voters in a November referendum. If this challenge fails, same-sex couples will be able to marry here next year.
In that case, here are some personal finance changes they could see after saying "I do":
Couples will be able to file a joint Maryland income tax return.
You'd think that would make tax preparation easier.
"It makes tax filing way more complicated," says Debra Neiman, a financial planner in Massachusetts, which passed same-sex marriage in 2004.
Because the U.S. government doesn't recognize these marriages, each partner will have to file a federal return. Maryland's return relies on information from the federal return, so couples will have to fill out a dummy federal return to know what to put down on their joint state return, Neiman says.
Filing separate federal returns, though, adds another complication. Married same-sex couples end up filing as single or head of household. And when they sign that return, they're declaring — "under penalties of perjury" — that all the information is true. A movement called Refuse to Lie encourages couples to tell the truth and file jointly.
Steven Weisman, a lawyer and senior lecturer at Bentley University in Massachusetts, recommends that his gay married clients add a cover letter to federal returns explaining that they are married under state law. This can help if the couple seeks a mortgage, he adds, because it shows that they are married and pooling their incomes.
With same-sex marriage, you can die without a will and your spouse will still be able to inherit some or all of your estate.
Maryland law determines how assets are distributed when people die without a will. If the deceased is married, the assets will be divided between the surviving spouse and children. And if there are no kids or parents, the surviving spouse will inherit everything.
"Now you will have someone who automatically has inheritance rights," Weisman says. "That's a big thing. Two-thirds of people don't have a will."
Same-sex spouses also will be able to postpone state taxes on estates that exceed $1 million when the first partner dies. Maryland allows each person to shelter up to $1 million from estate taxes, but spouses get an extra tax benefit. One spouse can leave an unlimited amount to the other, and that won't be subject to the estate tax until the second spouse dies.
And same-sex spouses will be able to avoid a pricey 10 percent inheritance tax in Maryland if one partner dies and leaves assets to the other, says Scurti, the Towson lawyer. Inherit from someone outside the family, and you will owe that tax.
(Maryland currently doesn't assess an inheritance tax on domestic partners who inherit a mate's share of a jointly owned primary residence. But, Scurti says, that's only if the couple executed a domestic partnership affidavit beforehand.)
Gay spouses won't enjoy similar tax benefits on a federal level. Instead of being able to leave unlimited amounts to a mate tax-free, the deceased's estate will owe federal taxes on amounts above $5.12 million (a sizable sum, for sure, but the figure is set to drop next year).
"It can be taxed twice," Neiman says — once after the death of the first partner and again after the demise of the other.
If an employer provides health coverage for a worker's spouse, this perk isn't considered taxable income. But if the coverage is extended to a domestic partner, it is taxed.
With same-sex marriage, the benefit still will be considered taxable by Uncle Sam, Weisman says. But it won't be taxed by the state.
After Maryland Attorney General Douglas Gansler said that Maryland should recognize same-sex marriages from other states, the state changed its pension rules, says Michael Golden, director of external affairs for the Maryland State Retirement and Pension System. As of last year, same-sex married couples can name their spouse as the beneficiary of a state pension.
But the rules on private pensions that come under federal law don't change. That means gay spouses won't get the same protections as heterosexual spouses.
Spouses are entitled to survivor benefits in a private pension unless they waive that right, says Rebecca Davis, legal director with the Pension Rights Center.
But a same-sex spouse is entitled to the pension only if the employer has extended survivor benefits to domestic partners, and not many companies do, Davis says.
This different treatment between state and federal regulated pensions can lead to inequities in the event of divorce or death, Davis adds. Take the case of a couple in which one has a state pension and the other a private pension that doesn't recognize their union.
In a divorce, the spouse with the state pension must split that money with an ex, Davis says. But, depending on the court, the other spouse might not have to share the private pension, she says.
And if the spouse with the state pension dies, the other would be entitled to survivor benefits, she says. However, there might not be any survivor benefits from the private pension.
Here, too, protections remain greater for straight couples.
With a 401(k), workers can name anyone as the beneficiary. But if a husband, say, doesn't name his wife as a beneficiary on the account, she still will inherit the money unless she waives her right to it, Davis says.
Employees in a same-sex marriage can name a spouse as a beneficiary, too, Davis says. But workers can change the beneficiary without warning and disinherit a spouse, she says.
Also, a same-sex spouse who inherits a traditional individual retirement account from a mate will have to start taking distributions from the account — and paying taxes on the money — within a year after the death, says Denny Suckstorf, a Columbia financial planner.
With straight couples, he says, a spouse can inherit an IRA and postpone taking distributions until after age 70.
More than half of Neiman's work is with same-sex couples. She adds a word of caution to gay Marylanders:
"Just because you can marry doesn't mean you should," she says.
If you're adopting a child from a country that doesn't allow adoption by same-sex couples, she says, a marriage could derail that process.
Or, if one partner's child is applying for college aid, Neiman says, a new spouse's assets would be included in the financial aid formula. That could decrease financial aid.
Denny Suckstorf's name was incorrect in an earlier version of this article. The Baltimore Sun regrets the error.