The Indirect Effects of the Same-Sex Marriage Ruling

August 6, 2013

There are so many things in life that have both direct and indirect effects.

When the U.S. Supreme Court struck down a section of the Defense of Marriage Act (DOMA), it not only changed the way our federal government views marriage, but it also has indirect effects on the way the financial industry will do business going forward.

There are so many things in life that have both direct and indirect effects. For example, when I eat a whole large pizza by myself in one sitting, it is reasonable to believe that a direct effect would be my inability to move off of the couch for at least a couple of hours. A possible indirect effect is that because I couldn’t pry myself off of the couch long enough to take the dogs for a run, they decided to use my laptop as their own personal chew toy.

All kidding aside though, these direct and indirect effects happen almost every time the Supreme Court (or any other authoritative body) rules on a particular issue, it’s just not every day that it affects the financial industry in so many different areas.

What Happened?

On June 26, 2013, the U.S. Supreme Court used the Due Process Clause of the 5thAmendment to strike down Section 3 of the Defense of Marriage Act (DOMA), which excluded same-sex partners from the definition of marriage. However, the ruling does not directly address, and has no direct affect on, bans in states where same-sex marriage is not allowed. So while this decision changes the federal definition of "marriage" and "spouse," each state is still free to create its own definition of these terms.

What's the Impact?

This ruling affects employee benefits plans, federal programs offered to married couples, and federal taxation of same-sex couples, which is illustrated by looking at just a few areas that relate to retirement planning:

Affected Area Example
IRC section 72(s)

The “spousal continuation rule” available for nonqualified annuities

IRC section 401(a)(9) Special rules in determining the RMD before and after the employee’s death when the designated beneficiary is the surviving spouse
Eligible Rollover Rules Special tax-free rollover rules that apply only when the designated beneficiary is the surviving spouse
Penalty Tax Provisions Exceptions to the 10% penalty include certain expenses (i.e., higher education and unreimbursed medical expenses) incurred by the spouse
Social Security Spousal benefits that are provided (e.g., survivor and dependent benefits)
Medicare Certain privileges offered to spouses (e.g., the ability to delay enrollment into Medicare beyond age 65 if working spouse has sufficient medical benefits through their employer)

Clearly, the list does not stop here, and it will continue to expand when more programs and procedures are reviewed to ensure the new federal definition of marriage has been incorporated across the board. Also, many of these issues have yet to be fully addressed, and more are sure to come up, but Advanced Marketing will keep a close eye on the ever-developing dialogue and provide you with updates as they come.

If you have any questions about this topic, please feel free to call the Retirement Strategies Group at ext, 3939.

Picture of Chad Goforth

Chad is currently an Attorney Consultant for the Corporate Law Department at Pacific Life. Previously, he was a Senior Retirement Strategies Consultant, bringing more than 13 years of industry experience to his role and providing technical insights to our sales team and registered representatives on a variety of issues including IRAs, qualified plans, annuities, and estate planning issues.

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