Financial Considerations for Same-Sex Couples Getting Married in Florida

Hundreds of same-sex couples have tied the knot in Florida since the courts legalized same-sex marriage on January 6^th, and hundreds more ceremonies are expected in the weeks ahead. With all the excitement about this historic law change, many couples might not yet have had a chance to consider all of the financial and legal implications of their nuptials.

Before any couple can get married in Florida, they have to apply for a marriage license and either take a four-hour pre-marital counseling course or make it past a three-day waiting period. But the financial and legal implications of getting married aren’t nearly as simple. A change in marital status could affect everything from your eligibility for social services to your estate plan.

Because Florida doesn’t have a state income tax or estate tax, the tax implications of marriage are more straightforward than in other states. But there are still a number of financial and legal issues that couples should consider if they’re taking the plunge. Newlyweds aren’t the only ones affected either; same-sex couples who were legally married outside of Florida before the law change are equally impacted.

The following are six important considerations for same-sex couples who are thinking of getting married in Florida.

1. Prenuptial planning and agreements

The implications of marriage reach far beyond your wedding day. Are you and your partner prepared to comingle assets? How about the financial responsibility of end-of-life care? Are you prepared to divulge confidential financial information?  Consider whether the added responsibility of legal marriage is right for you before getting married.

Florida law remains unsettled regarding various spousal rights and protections during the marriage, in divorce and upon a spouse’s death. A prenuptial agreement can address these issues, including a spouse’s interest in homestead property, alimony, marital assets, and any right to the other spouse’s assets.  Note however, that the drafting and negotiating of prenuptial agreements generally requires each party to engage their own attorney and to fully disclose their assets.

If you’re ready to commit, consider whether a prenuptial agreement is right for you.

2. Filing your income taxes

Since the Supreme Court ruling in United States v. Windsor, same-sex couples who wed need to file their federal income tax returns using either “married filing jointly” or “married filing separately.”  But what does that mean, and how do you know which choice is right for you?

“Married filing jointly” allows a married couple to file one tax return together. In general, it’s easier for couples who use this filing status to qualify for tax credits and deductions than it is for couples filing separately. Couples who file joint tax returns also receive higher income thresholds for taxes and phaseouts, meaning they can earn more money and still qualify for some tax breaks.

There can be negative consequences to joint filing status. For example, if your spouse has unreported income that is discovered by the IRS, you may be liable for 100% of the additional income tax that is assessed, not 50%. In addition, spouses are jointly and severally liable for the full amount of income tax reflected on the return.  So, if one spouse doesn’t pay, the other may be held accountable.

On the other hand, “married filing separately” allows you to be responsible for the information on your tax return only. In many cases, spouses will choose to file separate tax returns to shield their partners from sensitive information on income tax returns.

Couples planning to tie the knot in Florida don’t have to worry about filing state income taxes, unless they reside in Florida but generate income in a state with an income tax. In that case, couples will need to file a non-resident return in that state.

3. Gift and estate planning

Married U.S. citizen spouses, regardless of their sexual orientation, qualify for the marital deduction, which allows one spouse to make unlimited tax-free gifts to the other spouse.  Additionally, property inherited from a spouse is generally exempt from estate taxes.

Thanks to the American Taxpayer Relief Act of 2012, the portability of the estate tax exclusion (currently $5.43 million and indexed for inflation) between spouses is permanent. Portability allows a fiduciary to make an election to transfer (“port”) the first spouse to die’s unused exclusion to the surviving spouse – who can use it to shelter his or her gifts and estate from tax.  Note, however, that to take advantage of portability, the deceased spouse’s fiduciary must make an election on a timely filed estate tax return. For example, if John dies before his husband, Paul, and John’s estate only uses $2 million of John’s exclusion, then, after making the portability election, the remaining $3.43 million of John’s exclusion will pass to Paul, who would then have $8.86 million (including Paul’s own $5.43 million) to use it for his gift and estate planning.

Like with income taxes, same-sex couples who are planning their estates in Florida won’t encounter state-level estate and gift taxes. However, if those couples have assets in other states, they should be aware of the possibility of encountering a transfer, inheritance, or estate tax – depending on the laws in the state where those assets are located.

4. Asset protection

Married persons have a host of options – that unmarried couples don’t have – for protecting their assets.

One example, tenancy by the entirety, is a special form of co-ownership available only to spouses. If a creditor obtains a judgment against one spouse, but not both spouses, the creditor may not seize the property. Also, a spouse generally can’t sell or give away his or her interest in the property without the consent of the other spouse.

Another way to protect assets is a marital trust, which benefits a surviving spouse during the spouse’s lifetime and then heirs after the surviving spouse’s death. One type of marital trust – an inter vivos Qualified Terminable Interest Property (QTIP) Trust(also known as the lifetime marital trust) – requires that all net income be paid to the spouse, but principal distributions may be left to the discretion of the trustee.

The spouse who creates the trust decides where the principal goes after the other spouse’s death. If structured properly, a lifetime marital trust can be a successful asset protection and tax planning tool.

Same-sex, Florida couples planning to purchase a primary residence should be aware of the homestead protection, which prohibits a judgment creditor from seizing the personal residence.  Though exceptions exist, generally, a creditor cannot force you to sell the residence to pay a debt.  To attain additional protection, assets that would be subject to a creditor claim can be used to reduce the mortgage principal balance on the personal residence.

Couples should also be aware of the homestead tax exemption. Every homeowner in Florida – regardless of marital status – is eligible for a maximum $50,000 property tax exemption. If one spouse holds the title to the residence, the other spouse can file for the exemption with consent from the titleholder.

Because same-sex marriage is new in Florida, it still remains to be seen whether those couples will automatically qualify for marital benefits of the homestead exemption.

5. Planning for retirement

Same-sex spouses have been included in qualified retirement plans since the Windsor decision, and plan administrators should ensure that those plans include all couples, regardless of their sexual orientation.

For Florida residents participating in 401(k) or IRA plans, marriage will qualify their spouses for benefits. Even before Florida legalized same-sex marriage, married couples were qualified for spousal benefits under qualified retirement plans, provided they married in a state that recognized their union.

Couples considering a walk down the aisle should be aware of their spouses’ right to their retirement benefits. Spousal consent is required to change a retirement account beneficiary in many plans. So, if you want your retirement benefits to go to your children or another beneficiary, your spouse must approve the change or otherwise waive his or her right to those benefits.

6. Social services eligibility

Marriage could impact your eligibility for government aid programs such as Medicaid or Affordable Care Act (ACA) health plan tax subsidies. A change in household income and marital status could possibly reduce or eliminate benefit payments. Same-sex married couples currently receiving Medicare benefits could also see a change in their entitlement or eligibility.

Same-sex spouses are now legally entitled to collect Social Security survivors’ benefits when a spouse dies. Additionally, they are eligible for state retirement and health insurance benefits.

Some newly married same-sex couples have been together for decades. Those couples, in particular, might find that they have to make some financial adjustments to maximize their benefits or retirement plans and to minimize taxes. If you have questions or concerns about financial planning before or after your wedding day, please contact me or another member of the Kaufman Rossin team.