Gay? Then Expect Financial Headaches

What's the big deal, right? If a gay couple can't marry, does it really matter? Do they lose out on more than the chance to register for gifts? Do single, gay folks face different financial issues than single, straight ones? Well, yes, they do.

Consider this: If a married person dies, the couple's assets pass seamlessly to the surviving spouse. If the deceased was in a same-sex relationship, though, and not married, there's a good chance that the surviving partner will be socked with inheritance taxes. In Maryland, for example, there would be a 10% hit, while in Pennsylvania, it's 15%. Imagine having to pay $75,000 on a $500,000 "inheritance" when your spouse dies.

Meanwhile, you might think that domestic partnership arrangements can fill most of the needs of same-sex couples, but they're actually not enough. And the way they work may surprise you, too. When companies extend benefits to domestic partners, it doesn't work the same way as with married spouses. The benefits received are treated as taxable income. So while you may be happy to receive health insurance from your partner's employer, you may be facing a hefty tax bill on a sizable benefit. A few employers recognize this disparity and go as far as "grossing up" the affected employee's income to cover the cost of the tax bite. For example, Discovery (Nasdaq: DISCA), parent of the Discovery Channel, Animal Planet, and more, does this. And dozens of big names in the Business Coalition for Benefits Tax Equity support legislation ending the taxation of health-care benefits for domestic partners. Some supporters are Best Buy (NYSE: BBY), Hewlett-Packard (NYSE: HPQ), Marriott (NYSE: MAR), Alcoa (NYSE: AA), and Xerox (NYSE: XRX).

401(k) blues
Here's another danger facing partnered gay employees. They may have designated their partners as the beneficiary for their 401(k) accounts, but there's a good chance that their partners will be forced to take the entire amount as a lump-sum distribution, which can put them in a higher tax bracket and end up costing much more than if they were able to stretch out withdrawals over time. Employers now have the ability to permit beneficiaries to open an IRA and transfer 401(k) funds to it, but not all employers are aware of this or offer it. One safeguard against this, if you leave your job, is to roll over the 401(k) assets into an IRA instead of leaving them in the 401(k) plan. In some situations, you may be permitted to roll over the assets while still employed.

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