Q&A: Does Social Security pay survivor benefits in same-sex unions?

Dear Liz: I am 65 and was recently laid off after 26 years with the same company. My life partner of 25 years died in 2010. We had been legally married in 2008. I’d like to wait until I’m 70 to collect my Social Security. Is there any way I can collect her Social Security until then? I don’t know what the federal laws are regarding this and whether they have caught up to the intent of the law regarding same-sex unions. I’m sure I’m not the only one wondering about this, so any guidance you could provide would be greatly appreciated.

Answer: Yes, you should be entitled to a survivor benefit that’s either equal to what your wife was getting at her death, or what she would have received at full retirement age if she died before applying for her benefits.

A reduced survivor’s benefit is available starting at age 60. You can’t backdate your application until then — the most you can get if you apply now is a lump sum equal to six previous months of benefits. You retain the ability to switch from a survivor benefit to your own (or vice versa for that matter). That’s one of the many ways that survivor benefits differ from spousal benefits, since the ability to switch from a spousal benefit to one’s own benefit is being phased out.

Q&A: Financial benefits of marriage

Dear Liz: My registered domestic partner and I are both 64. We have similar incomes, similar 401(k) accounts and own a home together. We plan on retiring at 66, at which time we will also get similar Social Security benefits. We are each other’s beneficiary on all insurance, accounts, etc. My question: Now that the Supreme Court has made it legal, would it benefit us financially to get married? We’ve never felt an emotional need for that validation but are questioning whether it would make sense for other practical reasons.

Answer: When incomes are dissimilar, there’s a strong argument to be made for marriage. The lower earner may get more from a Social Security spousal benefit than from his or her own retirement benefit. In addition, the lower earner could get a much bigger survivor benefit, since a survivor gets the larger of the couple’s two Social Security checks.

If either of you had a traditional pension, a spouse would be entitled to survivor benefits that an unmarried partner can’t claim. And if you were of dramatically different ages, marriage would allow a younger survivor to put off starting mandatory withdrawals from inherited accounts.

Marriage also has estate planning advantages, but those primarily benefit wealthy couples (see above). If you do remain unmarried, you’ll want to make sure you both have powers of attorney for healthcare and finances so you can make decisions if the other becomes incapacitated.

There are many other benefits to marriage, which the self-help legal publisher Nolo has summarized at http://bit.ly/1mOmpZA. You also might want to talk to a fee-only financial planner who has experience with same-sex couples to make sure that your assets and rights are adequately protected if you remain unmarried.

Social Security’s divorce and survivors benefits for same-sex married couples

gay-marriage-cake-toppers-485x320Same-sex marriage has been legal long enough in a couple of U.S. states that its pioneers may qualify for Social Security benefits even if they divorce.

Marriages that last at least 10 years before they end qualify the participants for both spousal and survivor benefits from Social Security. Spousal benefits equal up to half the benefit a spouse or ex-spouse has earned, while survivors benefits typically are equal to what the spouse or ex-spouse was receiving at death.

More information on the benefits available to same-sex married couples can be found in my column for Bankrate.

Also on Bankrate, I answer a reader’s question about using her 401(k) account to delay taking Social Security benefits. And on Reuters, I take a look at why parents are spending more and worrying less about college.

Q&A: Survivor benefits for domestic partners

Dear Liz: Your answer to the reader asking about Social Security survivor benefits for same-sex couples was incomplete. If the person was a registered domestic partner in a state that did not allow them to marry, they still qualify for spousal death benefits. Please tell those affected so they know they should apply ASAP.

Answer: Thanks for pointing that out. Social Security survivor benefits are available to legally married same-sex couples whose marriage is recognized by the state where the couple was living at the time of the spouse’s death (assuming the deceased spouse meets all other qualifications for benefits). If the state where the couple lived doesn’t recognize same-sex marriages, a surviving partner may still qualify as a widow or widower for Social Security benefits if the intestacy laws of that state allow the surviving partner of a non-marital legal relationship (such as a civil union or domestic partnership) to inherit as a spouse.

Q&A: Social Security and same-sex marriage

Dear Liz: My partner of 30 years recently died. Am I eligible for Social Security survivor benefits? I don’t want anything I don’t deserve, but if I’m entitled to something, every penny would be appreciated. I am 54 and make minimum wage.

Answer: Your eligibility for Social Security benefits as a spouse depends on three factors: whether your state recognizes same-sex marriages, whether it did so on the date your partner died and whether you were legally married. (You wrote “partner” rather than “spouse,” which suggests you may not have been.)

The Supreme Court paved the way for Social Security to offer same-sex benefits when it ruled parts of the federal Defense of Marriage Act unconstitutional last summer. Social Security has taken the position that it must follow state law in recognizing same-sex marriages and that what matters is where the couple live, not where they married. Even in states where same-sex marriage is currently legal, Social Security denies survivor benefits if it wasn’t legal when the spouse died.

If you are eligible, you can start receiving benefits as early as age 60. (Survivor benefits are available at any age if the widow or widower takes care of a child receiving Social Security benefits who is younger than 16 or disabled.)

Starting early reduces your survivor benefit significantly compared with what you would get if you wait until your full retirement age of 67. As a survivor, though, you’re allowed to switch to your own benefit later, if that benefit is larger. (That’s different from spousal benefits, where spouses are precluded from switching to their own benefits if they start getting Social Security checks before their own full retirement age.) If your survivor benefit is likely to be larger than any benefit you’ve earned on your own, though, it typically makes sense to delay starting Social Security as long as possible to maximize what you’ll get.

Wednesday’s need-to-know money news

images (1)Today’s top story: How to build credit at any age. Also in the news: The best length of time for car loans, getting the most from store reward programs, and what heirs need to know about reverse mortgages.

Am I Too Old to Build Credit?
No. Never.

Should you take on a six-year car loan?
Probably not.

How to Get the Maximum Value Out of Coupons and Loyalty Cards
Getting the most from that annoying loyalty card.

What Heirs Need to Know About Reverse Mortgages
How much will you have to pay back and when?

Whether to Wed: 5 Tax Issues Facing Same-Sex Couples
Come tax time, marriage equality doesn’t necessarily mean financial equality.

Monday’s need-to-know money news

returnToday’s top story: Should same-sex couples have their tax returns amended? Also in the news: What you need to do before buying a home, how long you should hang on to financial documents, and what to do if you can’t pay your taxes.

Same-Sex Spouses: Should You Amend Your Tax Returns?
Understanding the tax laws in states that recognize marriage equality.

5 Things You Should Always Do Before You Buy a Home
What you need to know before taking the leap.

How long to keep your tax documents
What to keep and what to throw away.

What to Do if You Can’t Pay Your Taxes
Not paying is not an option.

5 Handy Tips for Saving Cash on Your Grocery Bill
How not to leave your paycheck at the grocery store.

What same sex couples–and their advisors–need to know

Last summer’s Supreme Court decisions on same sex marriage created a sea change for gay couples, but the details of that change depend on where they got married, where they live now and the federal agencies involved.

The changes are dramatic and complex enough that financial advisors should contact any clients with same sex partners to discuss the implications, planner Thomas Tillery explained at the AICPA’s financial planning conference in Las Vegas on Monday.

Tillery is a longtime fee-only planner with a string of credentials—CFP, CLU, ChFC, LUTCF, CRPC—as well as a masters of science in financial services and, interestingly, a masters of arts in Christian education from the Southern Baptist Theological Seminary. What Tillery doesn’t have is much patience for advisors who ignore these issues because they disagree with the Supremes’ decisions; they’re “fools,” he said, who need to understand the new realities and serve their clients appropriately.

Here’s a brief summary of what advisors and couples need to know, by agency:

The IRS. Same sex couples are considered legally married for federal income tax purposes if they were wed in a state that recognizes their marriage. It doesn’t matter whether the state where they currently reside recognizes such unions, Tillery said. Couples can apply for refunds for up to three years’ worth of tax returns if they were married during those years and their newly-recognized status would have resulted in lower taxes. Some gay couples had to pay income tax on health insurance benefits for their spouse; the elimination of that requirement could mean money back from the government.

Social Security. Here, residence matters: if the state where couple applies for benefits recognizes same sex marriage, then Social Security spousal and survivor benefits are available to that couple.  One way around this limitation is for the couple to establish residency in a state that recognizes their marriage and then apply for benefits. They could later move to a state that doesn’t recognize their marriage without risking the loss of their Social Security benefits, Tillery said.

Department of Defense. Benefits are available for same sex spouses who can show a valid marriage license from any state or country that recognizes gay marriage. The state where the couple currently lives is irrelevant. Service members can get special leave to travel to a state where same sex marriage is recognized in order to wed.

Department of Labor/ERISA.  Qualified pension plans have guaranteed protections for spouses, including automatic survivor benefits unless the spouse waives them and provisions that allow for division of retirement assets at divorce without triggering tax bills. Whether a same-sex married partner qualifies as a spouse for these provisions depends on whether the state where the employee resides recognizes same sex marriage.

The Supreme Court decisions have implications for other aspects of a couple’s financial life, including estate planning, family leaves, participation in flexible spending accounts and more.

My advice: if you don’t have an advisor who can help you with these issues, find one who can. It could make a huge difference in your financial lives and financial security.