Same-sex couples face challenges in financial planning

Bill Cass, CFP®, CPWA®

Bill Cass, CFP®, CPWA®, 06/11/19

Same-sex couples face challenges in financial planning

While progress has been made on marriage equality, same-sex couples may continue to face obstacles to saving and other financial planning issues.

The legalization of same-sex marriage by the Supreme Court on June 26, 2015, meant that no state could prevent same-sex couples from getting married and that all states had to recognize the marriages. The ruling also meant that all married couples — same-sex and heterosexual— have access to the same federal benefits, as well as programs administered by Social Security, Medicare, and Immigration Services.

Still, state laws continue to shift around family issues and the LGBTQ community. Same-sex married couples may face challenges when dealing with adoption, employment benefits, and other legal issues.

Same-sex couples who are not married and LGBTQ individuals may also face complicated issues around financial planning and saving for retirement.

A 2018 Prudential study, “The Cut: Exploring financial wellness within diverse populations,” cited income disparity as a barrier to saving. While respondents reported lower levels of income, the study also noted that working arrangements may have an impact as slightly fewer LGBTQ respondents noted that they work part-time.

The Prudential study found:

  • Half of the LGBTQ respondents reported that their household income was below $50,000 compared with a median income of $70,000 for non-LGBTQ respondents.
  • About 41% of LGBTQ individuals surveyed said they were struggling financially.
  • Most respondents were less likely to have started saving for retirement than those surveyed in 2012. In fact, more than half (55%) of LGBTQ men and women had no retirement savings.
  • Just 27% of LGBTQ individuals cited access to a 401(k) compared with 41% of non-LGBTQ respondents.
  • The LGBTQ respondents were also less likely to have a will or estate plan. Overall, they owned fewer investment products such as mutual funds or life insurance compared with non-LGBTQ respondents.
Financial and estate planning

While the marriage equality victory provided many legal protections and benefits for married couples, the federal law still may not cover all areas of financial planning for families. Couples may consider conducting a review of financial and estate plans with a financial advisor. It is also important to review the current status of federal, state and local laws governing property ownership, parental and adoption rights, inheritance, and medical decision-making. There may be differences that could require additional legal documents.

For unmarried couples, financial planning can be more complex without access to the same legal rights and privileges as married spouses. But with proper planning and legal documentation, they can achieve many of the same rights and meet their planning goals.

Some considerations for couples and individuals include:

Designate beneficiaries for retirement plans and investment accounts. A beneficiary designation can help heirs avoid the probate process, which generally does not consider non-married partners as heirs.

Consider life insurance and long-term care insurance. Insurance can help when planning for the future, especially if one partner is financially dependent.

Update legal documents. Unmarried couples do not have the automatic legal protections of married couples. Legal documents and asset ownership decisions are essential. These documents include health-care proxies, medical directives, durable power of attorney, wills, and trusts.

Seeking advice

The Prudential survey found that LGBTQ women and men were more likely to say they would like to get financial advice from others who were more knowledgeable. While LGBTQ women were more likely to welcome financial advice, 40% said they did not currently have a financial advisor.

317409