This article looks at the financial planning implications following a recent historic US ruling that overturned a state-wide ban on same-sex marriages.

Last month, the Supreme Court ruled that same-sex marriage bans at the state-level are unconstitutional in a landmark ruling after what have already been huge changes in recent years to laws around same-sex marriage in the US.

Besides being a major victory for the LGBT community, the news is particularly relevant given the wealth management industry's widened focus on client segmentation and, for example, catering to the “modern American family” in recent time.

The first development came in 1996 in the shape of the Defense of Marriage Act (DOMA), which had two main strands. Section three prohibited federal benefits from same-sex married couples while section two meant that individual states didn't have to legally recognize same-sex marriages that took place in other states or jurisdictions.

In June 2013's US vs Windsor case, section three was was ruled unconstitutional after Edith Windsor was to pay estate taxes on assets inherited from her deceased spouse (the couple had married in Canada and lived in New York, where same-sex marriage was recognized.) But with section two of DOMA still in tact, individual states could still refuse to perform same-sex marriages or recognize them legally, meaning same-sex couples have hitherto had to continue navigating a geographic patchwork of laws (source: Northern Trust's Obergefell V. Hodges Impact On Same-Sex Relationship Recognition paper). So, if a same-sex couple exploited federal marriage benefits in a state that allowed same-sex marriage, but then moved to one that doesn't, their financial arrangements might have been in jeopardy.

But in an even bigger triumph last month, the Supreme Court ruled in Obergefell vs Hodges that every state must recognize same-sex marriages, further dissolving the financial and legal disparities that existed previously.

The Obergefell decision, combined with the 2013 Windsor ruling, has leveled the playing field for same-sex married couples regarding the licensing and legal recognition of marriage - a development with significant financial planning ramifications, Prudential Financial recently noted.

While the 2013 Windsor decision extended federal benefits to same-sex married couples, state-based benefits and access to state courts were still unavailable to same-sex married couples who lived in states that banned same-sex marriage. Additional financial planning opportunities for same-sex married couples therefore now exist in the areas of workplace benefits; retirement preparation; estate and gift planning; and tax filing.

“From a planning and wealth strategy perspective, things have become a lot easier – more predictable and uniform on a nationwide basis,” Ed Mooney, a wealth strategist at BNY Mellon Wealth Management, told Family Wealth Report. Much of the wealth management advice given to heterosexual married couples traditionally will now be applied to same-sex couples – but without having to “backflip” into alternative solutions, he said.

That the legislation has made the financial lives of married same-sex couples easier is also an opportunity for the banking sector to help them realize some of the benefits previously unavailable, as well as to highlight some of the issues relevant among heterosexual married couples, such as divorce and pre-nups.

“Some of the collateral issues financial planners might want to think about are if there were benefits denied in states previously that are now available, also whether private companies will rethink their domestic partnership policies for unmarried couples.” Mooney explained.

For many, a big impact of marriage on a same-sex couple's estate and wealth transfer plans is access to the unlimited marital deduction, Northern Trust noted in its paper.

This deduction allows married couples to make unlimited transfers of assets between one another during life or at death, without having to pay federal or estate tax. This is where some “retroactivity” may come in, as in the past individuals in a domestic partnership might have used life insurance to avoid wealth transfer tax at the first death, for example, Mooney explained. “We no longer have to do that, so it might be worth looking at unwinding or modifying those strategies,” he said.

“Portability” is another wealth and estate planning strategy only available to married couples – if the first spouse dies without using all of their federal estate tax exclusion, the unused portion can be transferred to the other living spouse. Federal income tax is also a stand-out issue, particularly as before the 2013 Windsor ruling tax filing jointly or married filing separately were not options for same-sex partners. “The impact of marriage on a couple's federal tax burden can be significant, and it is important for same-sex couples and their advisors to discuss how marriage may affect a couple when it is time to file their taxes,” Northern Trust said.

Meanwhile, trust planning remains an “invaluable” opportunity, even with the aforementioned unlimited marital deduction and the “ever-increasing” federal lifetime exemption amount, according to the Chicago, IL-headquartered firm. Besides issues of privacy, same-sex married couples may consider using trusts if there are other individuals or organizations to whom they would like to pass down their assets, for example. There are also clear advantages when it comes to retirement planning; for same-sex couples where one or both has assets in an IRA, marriage opens up access to planning options that aren't available to non-married couples.

With the above said, however, many same-sex couples have lived together as domestic partners for generations, and have successfully overcome financial hurdles brought about by denied access to marriage – or indeed their desire not to marry. In fact, six years after Massachusetts became the first state to allow same-sex marriage (but prior to the 2013 Windsor decision), only 152,335 same-sex households were identified as married in 2010 versus 440,989 of unmarried ones, Northern Trust highlighted. “While these figures may not seem relevant given the rapid changes in Federal and state laws over the last five years, it may show that even given the right to legally marry, same-sex couples may be slow to embrace matrimony as best for their personal situation,” it said.

For couples – same-sex or heterosexual alike – a range of techniques have been used by estate planners for decades, including: titling assets; transferring wealth using trusts; discounting techniques; and partnership agreements. Even though same-sex marriage is now legal across the US, Northern Trust anticipates that “there will likely be continued debate for some time on nuances of law in various states.” Divorce law, for example, will continue to vary, with issues such as alimony and division of property treated differently in California than they are in Texas. Laws governing inheritance are also inconsistent.

The Obergefell decision is indeed another landmark outcome for same-sex couples, but just as is the case with heterosexual couples, there is still – more than ever – a crucial need for wealth planning advice that accounts for each couple's unique financial situation, and location.