While many people focus on the religious, moral, and ethical issues around gay marriage, many in the financial community are now looking at the monetary picture. It is here that allowing gay marriage will make one of the biggest day-to-day differences in the celebrants' lives, and it is also here that the biggest potential errors may be made.

Talk with financial advisers who have a large gay and lesbian clientele and they are likely to acknowledge that these customers are more aware of estate planning and tax issues, if only because the system for years has forced makeshift maneuvers aimed at achieving the financial ends that straight couples take for granted. These include survivor benefits, beneficiary rights, and more.

Yet many of these same financial advisers -- particularly here in Massachusetts, the first state to allow gay marriage -- suggest that the couples rushing to tie the knot may be undoing years of financial planning in the process.

"A lot of people developed domestic partnership or relationship agreements, which functioned like a prenuptial agreement," says John LeBlanc of Back Bay Financial in Boston. "But state law supersedes those agreements, so when a couple gets married, those prior agreements in most cases become null and void. If the couple gets a divorce -- and if there are marriages, you can bet there will be divorces -- the careful planning that a couple did when they were not married may be undone by having gone through the ceremony."

There are other obstacles for gay couples to negotiate, most notably the difference between state and federal law.

A couple married in Massachusetts, for example, might file their taxes jointly. Since Massachusetts taxes ride on the federal tax form, the couple would complete a federal tax form as a married couple, then transfer the information to a Massachusetts form.

And then the couple would toss out the federal form they had prepared, because they're not married in the eyes of Uncle Sam.

That means not only starting over and filing federal returns as singles, but enclosing a letter with their federal return saying they are married in Massachusetts. Some financial and tax planners are concerned that if couples file as single when they are married -- and don't include a letter of explanation -- they could be considered guilty of tax fraud under federal law.

There are other issues, such as how Massachusetts tax payments will be split for federal credit. And there will be issues surrounding Medicaid, COBRA benefits (the federal rule allowing a worker who loses a job to continue health benefits at his or her own cost), Social Security benefits for adopted children, different forms of property ownership, and more.

For now, whether it is a marriage or a civil union, there are two sets of rules to be aware of -- federal and state -- and there is the need to remember that major life events require significant finan-cial planning reviews.

For every financial issue gay marriage creates, however, it solves one or two problems.

One example--where married couples can get discounts that are unavailable to singles in this state, such as for health insurance.

Another: Massachusetts residents who are married can make unlimited financial gifts to each other, unlike partners who are subject to an annual gift tax law limit. (This is another area where partners need to be careful, as it will be possible to move money in accordance with state rules, but still mess up on federal statutes.)

There are estate tax benefits -- married couples have an unlimited marital tax deduction in Massachusetts -- and basic protections. In this state, married spouses who die without a will have their assets automatically move to their partner, which is not the case with an unmarried person.

-Adapted from the Boston Globe, May 20, 2004 by Chuck Jaffe.

05/2004