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Supreme Court's Same-Sex Marriage Ruling Has Major Tax and Financial Planning Implications

The Supreme Court’s landmark ruling last Friday allowing same-sex marriages in every state opens up new tax and financial planning horizons for couples.

The justices ruled 5-4 in the case, Obergefell v. Hodges, finding that state officials violated the Fourteenth Amendment by denying same-sex couples the right to marry or to have marriages that were lawfully performed in another state given full recognition in their state (see Supreme Court Rules in Favor of Gay Marriage).

The ruling mainly affected the 14 states that have continued to ban same-sex marriage, though the case specifically involved only four states—Michigan, Kentucky, Ohio and Tennessee.

Federal law changed two years ago when the Supreme Court decided another landmark case, U.S. v. Windsor, finding a key section of the Defense of Marriage Act unconstitutional. The IRS responded with regulations and guidance to help tax and financial advisors, and their clients, in the wake of that earlier ruling.

The Windsor case enabled same-sex couples to begin filing joint tax returns with the federal government, but those who lived in states that did not recognize same-sex marriage have still needed to file their taxes individually, making tax time even more complicated for them and their accountants.

After Friday’s Supreme Court ruling in the Obergefell case, same-sex couples will be able to file joint state tax returns in any state, though it may take a while before all the state tax authorities finalize their regulations and issue guidance. Some states may even choose to file last-ditch legal challenges, and Texas authorities already seem to be erecting some barriers. The Texas Attorney General told county clerks and magistrates Sunday that they can opt out of issuing marriage licenses to same-sex couples if they have religious objections.

While state officials may continue to erect some barriers in the remaining states, the Supreme Court’s decision opens the door for LGBT couples to get married across the country. Besides the ability to file joint state tax returns, another important implication for same-sex couples involves gift taxes.

Same-sex couples will now be able to make unlimited gifts to each other without needing to worry about gift tax implications, noted Nicole M. Pearl , a partner in the Los Angeles law firm McDermott Will & Emery.

As with the Windsor case, the Obergefell case involved a member of a same-sex couple whose partner had died. In the wake of both rulings, same-sex couples will be able to leave property to each other without the survivor needing to pay estate taxes.

Another benefit now being extended to same-sex couples involves rollovers of individual retirement accounts. A member of a same-sex couple will now be able to leave an IRA to the surviving spouse as a tax-favored rollover IRA.

The ruling will also help with Social Security benefits. A member of a same-sex couple can now qualify as a surviving spouse when it comes to determining Social Security benefits. If the deceased spouse was receiving a higher Social Security benefit than the surviving spouse, the surviving spouse can thus qualify for the higher benefit.

There are also a number of new health care and divorce rights that come along with the ruling, such as the ability to qualify as a spouse for health insurance benefits and visit a spouse in the hospital. On the divorce side, when the marriage doesn’t work out, spouses will have an easier time suing for divorce. As couples of the opposite sex have long known, the right to marry doesn’t always mean the ability to stay married. Still, for those of us who are LGBT, the ruling handed down by the Supreme Court comes as welcome news, opening the way to not only tax and financial planning benefits but also new vistas and possibilities in life.

What do you think of the Supreme Court's ruling?

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