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FAMILY FINANCE: Same-sex marriage a financial boost

Lynn Brenner | Family Finance

July 13, 2008

Gov. David Paterson has directed all New York agencies to recognize same-sex marriages performed elsewhere. Would New York recognition of a California ceremony give me and my partner all the financial advantages of being married? Don't some of those advantages depend on the federal government?

- A.M., Brooklyn

Most financial advantages of marriage are indeed grounded in federal law. But New York's recognition of same-sex marriages performed elsewhere would provide some meaningful legal benefits. For example, state law says if you're married without kids and die without a will, your surviving spouse automatically inherits everything you owned. (If you're survived by a spouse and kids, the law divides your assets between them.)

Of course, you don't have to be married to leave everything to your partner in a will. But when you die, any blood relatives with a potential claim on your estate must be notified and given a chance to contest your will. This is true whether you're gay or straight, married or single.

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[CORRECTION: Due to an editing error, John Olivieri’s last name was spelled incorrectly in Sunday’s Family Finance column. Pg. A15 ALL 7/15/08] But the only relatives with legal standing to contest your will are those who by law would inherit your estate if there were no will, or if the will were invalid, says John Olivieri, a lawyer at White & Case in Manhattan. If you die single and childless but are survived by your parents, for example, only they can contest your will, because they'd get everything if there were no will. If your parents are dead, your siblings can contest your will. No siblings? Then your aunts and uncles can contest it.

But if the state recognizes your marriage, you have no kids and your will leaves everything to your spouse, nobody can contest it - because your spouse would get everything even if there were no will.

If your marriage were recognized in New York, you and your partner also would have an automatic right to inherit at least one-third of each other's assets, no matter what your wills say, adds Olivieri. New York doesn't let you disinherit your spouse.

Federal law confers the big benefits on married couples, however. Spouses can make unlimited gifts to each other without incurring any gift taxes, for example. They can also leave each other unlimited assets without incurring any estate tax. If you're very wealthy, that's a major plus: The maximum federal estate tax rate is currently 45 percent. If you're worth less than $2 million, it's irrelevant because you're not subject to federal estate taxes anyway.

Only traditional spouses can collect Social Security benefits based on each other's earnings. They also can qualify for a more generous formula for calculating their annual required minimum IRA distribution after turning 70 1/2, says Olivieri: If your IRA beneficiary is your spouse and that spouse is more than 10 years younger than you are, you get to take smaller minimum annual distributions. And although any beneficiary can now roll an inherited 401(a) account into an IRA, only a surviving spouse can put it into an IRA in his or her own name, thus postponing taxable distributions until age 70 1/2. All other beneficiaries must start taking IRA distributions right away.

The Defense of Marriage Act bans federal recognition of same-sex marriage. To date, the Supreme Court has refused to hear arguments that this act is unconstitutional because it deprives same-sex couples of equal protection under the law. The act also has been challenged as a violation of the Constitution's "full faith and credit" clause, which says states must accept each other's judgments. "If I get a judgment against you in New York and you flee to California, I can get the judgment enforced by a California court," explains Olivieri. "A state's pronouncement that two people are married is arguably also a judgment."

Send questions to Family Finance, Business Desk, Newsday, 235 Pinelawn Rd., Melville, NY 11747-4250, or e-mail to Bfamfin@aol.com. Include your age, income and a list of major assets. Letters and e-mails can't be answered personally.