On Wednesday, financial planners who work with gay couples were applauding President Barack Obama's declaration of his support of same-sex marriage.
While Obama's support is mostly symbolic at this point, his statement could signal the beginning of the end of the Defense of Marriage Act, or DOMA, which prohibits the recognition of gay marriage at the federal level. Aside from all the emotional implications, DOMA presents some very real financial challenges for married same-sex couples, especially when it comes to income tax returns and retirement planning.
"What we got today was a personal expression of the president's support and he can't overturn DOMA single-handedly," said Jennifer Hatch, CEO of Christopher Street Financial, a financial planning company that caters to gays and lesbians. "There is a long to go before anyone is filing joint tax returns."
Obama's announcement came a day after North Carolina voted to prohibit same-sex marriage and civil unions in the state. Currently seven states and Washington, D.C., recognize same-sex marriage.
The disconnect between state laws and federal regulations creates many financial headaches and higher costs for married same-sex couples as compared with their heterosexual counterparts.
"Very often same-sex couples have to engage in additional financial planning," said Ralph Randazzo, an attorney in New York City who specializes in estate planning for gay couples. And that can be costly.
As The Huffington Post reported earlier this year, filing income taxes is more expensive for married same-sex couples who must file two sets of returns in order to comply with various state and federal laws. For same-sex couples, the inability to file a joint federal tax return also means two married individuals with a disparity in income are ineligible for certain tax breaks and deductions.
Tax complications also extend to the sharing of assets. For opposite-sex couples, a transfer of assets between two spouses is not taxed. For same-sex married couples, though, a similar transfer of assets become a tax liability in the eyes of the Internal Revenue Service. When a same-sex spouse grants a partner something worth an amount in excess of $13,000, the IRS considers it a liability under gift tax rules.
"Any kind of asset transfer is technically a gifting situation and subject to taxes, which is a free transfer for opposite-sex couples," said Bruce Bell, manager for the legal information hotline at the Gay & Lesbian Advocates & Defenders.
Gay couples entering retirement may also lose out on Social Security benefits as well. For an opposite-sex married couple, if a spouse passes away, the living spouse can choose whether to keep receiving his or her own Social Security benefit or inherit the benefits due the deceased, which are sometimes higher. That same choice is not currently extended by the federal government to gay couples, according to financial planners with expertise in serving same-sex couples.
Recognizing marriage of this type at the national level would create more financial stability overall, Randazzo said.