In 2015, when the Defense of Marriage Act (DOMA) was struck down by the U.S. Supreme Court, many same-sex couples became eligible for more than 1,000 federal protections and privileges that were previously granted only to legally married opposite-sex couples. A few of the significant benefits now available to same-sex married couples include the rights of inheritance, the ability to file joint tax returns, and access to a same-sex spouse’s employee insurance coverage.
While these benefits represent a significant step forward for the LGBTQ community, it is still essential that you and your spouse (or your soon-to-be spouse) are on the same page with regard to your finances. Otherwise, it could lead to conflicts down the road.
Getting Your House in Order
Starting a new life together with someone can be exciting. But in order to build a truly successful relationship, there are several financial issues that you should consider, including:
• Sharing your financial habits with each other
• Building a budget together
• Deciding whether or not to combine your finances
• Putting essential legal documents in order
• Working with an LGBTQ-affirming financial-planning professional
Sharing Your Financial Habits with Each Other
Tying the knot with someone means that you will be sharing many things that you once handled on your own. And even if you and your significant other absolutely adore each other, the two of you might have very different views on how to handle finances. That’s why discussing your financial habits and views about money is essential to help you see where you may have significant differences. Discussing these topics sooner rather than later is especially important in cases where one of you wants to save as much as possible while the other wants to spend lavishly on travel and entertainment.
Building a Budget Together
Budgeting is an essential component of financial success. That is because a budget can show you exactly how much money is coming in and going out of your household. A budget that reveals you are spending more than you earn is a warning sign that you will need to deal with a significant amount of credit-card debt.
Creating a budget is actually very simple. It entails making a list of both your income generators and your expenses. So, for instance, you and your spouse may be generating income as employees or business owners, from rental property you own, from retirement or disability benefits, or from interest and dividends generated from investments.
When it comes to budgeting for expenses, you should categorize each expense as “essential” or “non-essential.” Essential expenses typically include your housing and transportation costs, food, toiletries and medications, insurance, savings for emergencies and retirement, and any student-loan payments.
Non-essential expenses, on the other hand, are those that are more wants than needs. You typically have more control over these costs, and can easily cut them out of your budget if you find that you’re spending more than you’re bringing in. Some examples of non-essential expenses would be vacations, dining and entertainment, subscriptions and memberships, and recreational vehicles or equipment.
As you work your way through creating a budget together, make sure that you prioritize where your money goes. This includes allocating funds for an emergency account, as well as building up savings for the future. The earlier you start a savings program, the more time you will have for the funds to grow.
Deciding Whether or Not to Combine Your Finances
Once you and your significant other have discussed your financial views and habits, you’ll have a better idea regarding whether or not to combine your finances. In some cases, one of you may be more detail-oriented, so it can make sense for that person to take care of bill paying and other financial tasks.
After carefully discussing the issue, you may decide to combine all of your savings and investments, and also open a joint checking account from which you pay your monthly household bills. Or you may decide to maintain separate personal savings and investment accounts while opening a joint checking account where each person contributes a set amount for day-to-day household expenses. This can give both of you the freedom to either spend or save your remaining individual funds as you see fit. It can also allow each of you to pay off any debts that were incurred individually, prior to getting married.
Some of the advantages of merging your financial life with your spouse’s can include the ability to move toward common financial goals, having more flexibility in cases where one spouse works while the other is in school or is the stay-at-home parent, and to generally keep things simple.
The drawbacks of combining finances with your partner could be feelings of financial constraint, the question of making one spouse responsible for the other’s debt, and the potential for disagreements over financial priorities (especially regarding spending versus saving).
Putting Essential Legal Documents in Order
While marriage equality made numerous benefits newly available to the LGBTQ community, it also made long-range planning more important than ever, in order to make sure that your end-of-life wishes are carried out.
For instance, all married couples (and individuals) should ideally have legal documents in place, such as wills, powers of attorney, and medical directives.
A will is a legal document that states the intentions of a deceased person concerning the distribution of their property and assets, as well as the management of their affairs following their death. It can help the surviving spouse determine where money and other assets should go. Married same-sex couples can now take advantage of the gift-tax and estate-tax deduction, which allows spouses to give unlimited assets to each other—both during your lives together and after death—without the survivor incurring gift or estate taxes.
Having a will in place is not enough, though. It is also important that you have other legal documents drafted such as powers of attorney and medical directives. A power of attorney legally authorizes a designated person to make decisions regarding another individual’s property, finances, and medical care if they are unable to do so themselves.
Taking the Next Step
Because everyone’s financial goals can differ, there is not just one plan that is right for everyone—even if you and your spouse are in total agreement about your financial priorities.
With that in mind, it is important to work with financial-planning professionals who are in tune with the LGBTQ community, so that your goals as a couple can be evaluated by advisors who are up-to-date on laws and other issues that impact the LGBTQ community.
This article appears in the April 2022 edition of OutSmart magazine.
