Same-sex marriage means gay couples get joint custody of debt
Shared legal rights mean shared burdens, including financial ones
By Michelle Crouch
See later story: Supreme Court's DOMA ruling cuts both ways
It's easier than ever for same-sex couples to get married in
America. In May, three more states moved to recognize gay marriage, bringing
the total to 12 plus the District of Columbia. But before rushing to say "I
do," same-sex couples may want to consider the financial consequences.
Like heterosexual spouses, same-sex spouses take on one of marriage's
biggest legal burdens: They may one day be on the hook for their partner's debt.
At the same time, the federal Defense of Marriage Act (DOMA) denies gay and
lesbian couples some of the key financial protections and benefits that opposite-sex
"Yes, we can get married in some states, but it's certainly
not equal and fair," said Ken Weissenberg, a CPA and attorney at accounting
firm EisnerAmper in New York City who is same-sex married himself. "More than 1,000
federal benefits, rights and protections are dependent upon the definition of marriage,
including things as mundane as Social Security survival benefits and being able
to file a federal joint tax return."
To further complicate matters, the U.S. Supreme Court is expected
in June to rule on the constitutionality of DOMA, which defines marriage as
exclusively between a man and a woman and allows states not to recognize
same-sex marriages that take place elsewhere. If any part of the law is thrown
out, it will be another victory for gay rights advocates -- but it may also
create more confusion and unresolved legal issues.
Emily Doskow, an attorney in Oakland, Calif., said gay couples
there are often shocked when they find out what they're on the hook for if they
get married. "Many same-sex couples are very used to having separate lives and
being separately responsible for their own stuff," she said, "so when they find
out that being married means they will be connected to their partner in this
legal and financial way, it can be a very heavy blow."
Debt and same-sex
As with heterosexuals, how much of your gay spouse's debt you can be held responsible
for largely depends on where you live.
In most states, if the debt isn't in your name and you're
not a joint account holder or a co-signer, it's usually not considered your
responsibility. But if you live in one of the nine "community property" states (Alaska has an "opt-in" community property election), any property acquired during the marriage is considered
to belong to both partners, and creditors could go after it. You could also be
jointly responsible for any debt your spouse racks up during the marriage.
Of those nine community property states (Arizona,
California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and
Wisconsin), three have laws that allow either same-sex marriage (Washington) or
domestic partnerships that are the equivalent of marriage (Nevada and California),
meaning creditors could go after same-sex partners in those states. Wisconsin
allows civil unions, but they do not confer all the rights of marriage.
"In those states, you want to be really careful about
acquiring property together," says Brett Weiss, a Maryland bankruptcy attorney.
"Let's say Mr. Smith has debt, and then Mr. Smith and his husband, Mr. Jones, open
a joint bank account or buy a house together during the marriage. That's
clearly community property, and in most cases, although the debt is Mr.
Smith's, the creditor can go after that property."
Many same-sex couples are very used to having separate lives and being separately responsible for their own stuff, so when they find out that being married means they will be connected to their partner in this legal and financial way, it can be a very heavy blow.
Attorney, Oakland, Calif.
See an attorney
Because community property laws vary, it's a good idea to
talk to an attorney before getting married in Washington or entering into a
domestic partnership in Nevada or California, Weiss and Doskow say. You may
want to keep separate bank accounts, avoid co-mingling your assets and possibly
get a prenuptial agreement that identifies debt racked up before the marriage
as belonging only to the person who acquired it, indemnifying the other person.
Even in states that aren't community property states,
creditors can still go after a same-sex spouse's interest in jointly owned
property. "How you title an asset is really important," said Doskow, co-author
of "Making It Legal: A Guide to
Same-Sex Marriage, Domestic Partnerships & Civil Unions." "People tend to just go ahead and title things
jointly even if one person contributed everything and the other contributed
nothing. But if there's no written agreement of who contributed what share or
what each person will get back upon the sale, there's nothing to protect you
In some jurisdictions, specific assets, such as retirement
plans and primary residences, are shielded from creditors through a form of special
joint ownership available to married couples. It's called "tenancy in entirety."
If you already own property or financial accounts with your
same-sex partner and hold it as joint tenants with rights of survivorship
(often abbreviated to "JTWROS" on brokerage statements), once you marry, you
should talk to an attorney about re-titling the property as tenants in entirety, Weiss says. "In most cases, property that's held as tenants by entirety
is protected from creditors, so they wouldn't be able to go after it except to
collect on a joint debt."
If you end up needing to file for bankruptcy in order to dig
out from your debt, the Department of Justice no longer opposes joint petitions
from homosexual couples who are legally married in their state. "It usually
makes more sense to file a joint petition if you can," Weiss said. "The main
advantage is that you save on fees and it simplifies the administration."
Financial benefits denied gay couples
While same-sex spouses generally take on the legal burdens
of marriage, they don't get the same financial benefits enjoyed by opposite-sex
couples. In some cases, that means gay couples are paying more for basic
necessities, so they have the potential to run up greater amounts of debt. Here
are a few of the extra financial burdens they face once they're married:
Income taxes. If you
live in a state that recognizes your marriage or that confers the same rights
on domestic partnerships, you can file a joint state tax return. But because of
DOMA, same-sex couples can't file a joint federal return, meaning extra tax
prep and higher accountant fees. If two partners make significantly different
incomes, they may miss out on a sizable federal tax break. Even more confusing:
last year, the IRS ruled that it would recognize community property owned by
same-sex couples and registered same-sex domestic partners in community
property states (Nevada, California and Washington), even though it doesn't
recognize the relationship. "That has created a lot of confusion," says Cathy Sakimura, executive
director of the National Center for Lesbian Rights. "They still have to file as
single people, but they literally have to attach a spreadsheet listing all of
their community property. It was so complicated the first year that tax
preparers were charging several thousand dollars to help people with it."
Personally, I don't want to burden my partner with the student loan and credit card debt I've accrued over the past 10 years, especially since marriage won't come with a lot of financial benefits.
Book publishing professional, New York
other federal benefits. Same-sex
spouses aren't eligible for the spousal or survivor benefits included with federal
programs such as Social Security, and they can't collect their loved one's
civil service or military pensions once they pass away. That can have
significant financial implications. A
2009 study by the Williams Institute, a think tank at the University of
California Los Angeles, estimated that gay and lesbian widows lose out on about
$5,700 a year in Social Security benefits alone because they can't get survivor
penalty. Even if an employer offers health insurance coverage to a same-sex
partner, the federal government charges income taxes on the dollar value of the
benefits your spouse receives because that person is not your dependent,
Weissenburg said. The cost can range from $3,000 to $5,000. Some large
employers absorb the extra cost to promote fairness and equity for their gay
Estate and gift tax. Heterosexuals can give as much money as they want to their spouses, whether they're living
or dead, without having to pay any federal tax, but the same marital deduction
isn't available to same-sex couples. That means someone in a same-sex marriage has to pay federal taxes on a spousal gift that exceeds the annual exclusion of $14,000, or
leave an inheritance that exceeds the tax-free amount, which now stands
at $5.25 million. "Because they're not treated equally under the law, it's very
important for same-sex couples to see a financial planner and an estate
attorney and have all of their estate planning documents in line," says Michelle
Maton, a financial planner and partner at Aequus Wealth Management
Resources in Chicago.
The estate tax inconsistency is the reason Edith Windsor was
hit with a $363,000 federal estate tax bill after her same-sex partner of 44
years died in 2009. Windsor sued in New York district court, arguing that DOMA
violates the equal protection clause of the Constitution. Both the district
court and the Appeals Court agreed, and her case is one the Supreme Court is
If part of DOMA is thrown out, it may give same-sex couples who
live in states that recognize gay marriage access to many of the federal benefits
they've long been denied. But it likely wouldn't change anything in other
states, leading to new questions about what happens when same-sex married
couples move across state lines. "What will happen if you're in the military
and you get married in one state, and then you get transferred to a different
base?" asks Sakimura. "Are you all of a sudden not married or entitled to any federal
Those types of issues may continue to give same-sex couples
a lot of think about before getting hitched. Frank Polito, who works in book
publishing in New York, said everyone assumed he would marry his partner of 23
years once the state legalized gay marriage. "But no one was thinking about the financial
implications," he said. "Personally, I don't want to burden my partner with the
student loan and credit card debt I've accrued over the past 10 years,
especially since marriage won't come with a lot of financial benefits."
Besides, he said, the couple is thinking about moving to
Michigan. "Even if we get married here in New York, once we moved, it wouldn't
matter," he said. "We basically wouldn't be married anymore."
See related: Compare states' community property laws
, In marriage, maintain your own credit
, 7 ways to ensure a financially successful marriage
Published: May 30, 2013