Same-sex couples: seven financial questions you need to ask
Written by Philip Howell-Williams on March 16, 2015.
It is important for all couples to be open about their finances, to understand the financial situation and make financial decisions together. However, for same-sex couples there are arguably even more compelling arguments for working together to ensure that your financial security is assured given that the laws concerning them are constantly changing and differ from one country, or even one region of a country in the case of the US, to the next.
Here are the seven most important questions that same-sex couples need to consider together:
What is our financial situation?
Understanding the big financial picture is an important first step in any long-term serious relationship. You should be clear about what you are both bringing in to the partnership in terms of salary, savings and assets, as well as any debts. Armed with this information you can make a financial plan for the future determining what your goals are and how you intend to achieve them together. Honesty is key if you are to build a life together – trying to hide any skeletons in your closet will only end up in resentment later down the line.
Retirement: what is our plan?
All couples should be planning for their retirement but this is particularly key for LGBT couples as spousal benefits cannot always be passed on between same-sex partners. You should ensure that you understand the laws which apply wherever you live and make plans accordingly. If you are not entitled to spousal benefits you might like to look at taking out life insurance to protect the surviving partner.
Is marriage a good idea?
Marrying for purely financial reasons is never a good idea but money is much more freely shared between married couples without tax implications. For example, gifts of any value between married partners would not be subject to tax but gifts over a certain amount ($14,000 in the US) between unmarried partners could be taxable.
In most cases being married will lessen your income tax liability although in certain cases, for example if both individuals are high earners, it may be more advantageous to remain single and declare income separately.
Another advantage of staying single may be if one partner in the couple has children approaching university age. In this case, being unmarried and only declaring one income could mean obtaining more financial aid for the child.
Of course in many countries, including Hong Kong, same-sex marriage remains illegal and will not be an option for you. In that case, it is important to take expert specialist financial advice.
What will happen to our assets when we die?
Writing a will is absolutely crucial for anyone but even more so for LGBT couples where the rules of intestacy could cut out an unmarried partner. Blood relatives are the standard default option to inherit when a will does not exist. Be clear with one another how you would like your money, your property and your possessions to be passed on when you die and get it written down.
Are we adequately protected against the unforeseen?
In addition to a will, you might also want to consider having powers of attorney drawn up to indicate who you would like to make your decisions for you should you become physically or mentally incapacitated. In essence, the person who you designate as power of attorney will be responsible for managing your finances.
As with any couple, insurance against unforeseen events such as critical illness or death will give you the peace of mind of knowing that your loved ones will not be financially disadvantaged should something happen to you. It is important to ensure that the beneficiaries on any life insurance policies are kept up-to-date especially for unmarried LGBT couples. Any major life event such as marriage, divorce or the birth of a child could change these so review them regularly.
What will happen if we break up?
If a married couple decide to split the divorce proceedings provide a blueprint for how domestic and financial responsibilities are split. No such process exists for unmarried couples and this can often make a break-up more painful and messy than it needs to be. Some LGBT couples create a cohabitation agreement with a break up plan to specify their domestic and financial intentions in the event of a split.
How can we protect our children?
It is increasingly common for one or both members of a same-sex couple to have children from a previous relationship. This raises its own set of issues with regard to their financial and emotional welfare. Who is financially responsible for the child, how are financial obligations split with the other parent, is adoption by the same-sex partner possible and/or desirable and who will take care of the child if the biological parent in the same-sex couple dies? You will need to get up to speed on the legalities surrounding these very complicated areas and ideally come to a written agreement with the child’s biological parents and their new partners. Individuals in same-sex couples who wish to leave assets to a child they have no tie to need to make provisions for this in their will.
A financial planner with a good understanding of the issues LGBT couples face is invaluable in helping you work through the answers to these questions. While the United States has accredited programmes for advisers trained in providing specialist assistance many other areas of the world are lacking in provision. If you are finding it difficult to find someone sympathetic to your needs and with the expertise to give you pertinent advice then get in touch and I will be happy to listen and to help.