Same-sex marriage means gay couples get joint custody of debt

Shared legal rights mean shared burdens, including financial ones

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 couples enjoy.

"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."

Same-sex marriage: Financial issues to consider before you say I do

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 marriage
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.

-- Emily Doskow
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 from creditors."

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.

-- Frank Polito
Book publishing professional, New York

Social Security, 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 benefits.

Health insurance 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 employees.

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 now considering.

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 benefits?"

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

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Updated: 01-23-2018