How to Financially Prepare for Parenthood as An Lgbtq+ Individual or Couple

In 2015, a landmark Supreme Court ruling gave same-sex couples the right to marry in the US, and same-sex couples now have the same rights in marriage as opposite-sex couples.

That said, there are still specific financial issues that same-sex couples (or single members of the LGBTQ+ community) may face more often than straight couples, even if they’re married. Many of them come into play when you decide to have children – let's take a look.

WHY FINANCIAL PLANNING MATTERS MORE THAN EVER FOR LGBTQ+ FAMILIES

One major difference is the financial cost to become a parent. Same-sex couples and singles need to do more planning to become parents than many opposite-sex couples. Adoption, surrogacy and fertility treatments like IVF and IUI are popular options, and all can come with high initial costs.

There are also additional legal considerations and potential costs related to parenting rights for LGBTQ+ individuals.

ESTIMATE THE COST OF STARTING A FAMILY

• Domestic Adoptions range from $20,000 - $45,000; international adoptions have an upward range of $70,000
• Gestational surrogacy can range from $100,000 - $200,000
• One round of IVF can cost $15,000 - $20,000 and could exceed $30,000 if a donor egg is involved. Many people require multiple rounds of IVF, with the average patient needing two to three cycles and spending close to $50,000.

Compared with traditional childbirth where the cost may be as simple as a $3,000 health insurance deductible, for example, LGBTQ+ costs to become a parent can be much higher.

But if those costs seem far out of your budget, take heart. There are often less expensive options like fostering to adopt, compassionate surrogacy (where the surrogate forgoes a fee), and even “DIY” approaches like at-home inseminations – though the Family Equality Council notes this option often comes with legal ramifications.

Some private medical insurance plans cover certain types of fertility treatment (Medicaid generally doesn’t). However, even these plans can require that the insured be “infertile,” criteria which LGBTQ+ individuals may not meet.

Therefore, LGBTQ+ couples or singles may need to start saving earlier and more aggressively when planning to become parents.

UNDERSTAND LEGAL AND FINANCIAL PROTECTIONS

LEGAL RELATIONSHIP TO YOUR CHILD

In a same-sex couple, where one or both partners may have a non-genetic and non-gestational relationship to the child, parents may need to take additional steps to ensure they have full parental rights when it comes to their children. GLBTQ Legal Advocates and Defenders, also known as GLAD Law, recommends that all LGBTQ+ parents ensure they understand the parentage rules in their state and, if necessary, formally establish parentage through legal means.

Establishing parentage can either come through adoption or a court order. The options and requirements vary by state, so it’s critical to understand your own state’s laws and potential legal challenges to existing law.

Without a legal relationship, it’s possible you could be unable to:

• Get custodial rights if you split up with your partner
• Make medical or school decisions for your child
• Add your child to your health insurance
• Qualify your child for Social Security survivor benefits if you pass away
• Leave an inheritance for your child (if you don’t have a will or beneficiaries on file, for example)

MARRIAGE VS. DOMESTIC PARTNERSHIP OR CIVIL UNION

While the right to marry is now enshrined in federal law, state laws may dictate your legal and financial protections if you’re not married to your partner. Two potential alternatives to marriage are domestic partnerships and civil unions (both of which are also open to straight couples). They can give you legal rights and benefits similar to marriage. But it’s important to note that neither are recognized at the federal level, and not all states recognize or even offer them. If your state does, the specific rights and protections it confers will vary.

ESTATE PLANNING CONSIDERATIONS

As noted, you could inadvertently disinherit your child and cause them to lose survivor benefits if you don’t establish legal parentage. And, if you have a spouse or partner – who might need to raise your child alone if something happens to you – it’s important to make sure they’re also financially protected.

If you’re deciding whether to get married or not, make sure you understand all the implications of your decision. For example:

• Some types of retirement accounts will automatically have a legal spouse as the default beneficiary. If you’re not married, you’ll have to specifically name them.
• If you die intestate and aren’t married (or in another legally recognized union), your estate will likely not pass to your partner.
• If you have a private pension that includes a death benefit provision and you pass away, if you have a spouse, they are entitled to a death benefit. If you aren’t legally married, it will depend on your specific plan.
• Spouses can be eligible for Social Security survivor benefits as well. Nonspouse partners can’t.

LEVERAGE EMPLOYER BENEFITS AND TAX STRATEGIES

When looking for ways to lessen the financial burden of growing a family, a great place to start is your employer. Check whether there’s a benefits guide tailored to LGBTQ+ individuals – many employers have them.

Many employers offer adoption benefits or other family planning help. If you’re adopting, there’s also an adoption tax credit you may qualify for.

If you’re lucky enough to have loved ones who want to help with the costs of starting your family, note that payments directly to medical providers aren’t considered taxable gifts and don’t have to be reported to the IRS, no matter the amount.

Once your child is born, you may have access to a flexible spending account for dependent care. It allows you to put aside pretax money from your paycheck and spend it on eligible childcare costs.

There are also federal child tax credits and a credit for dependent care expenses. You can’t use an FSA and claim a tax credit for the same expenses – if you have both available, check to see which is more financially beneficial for you.

If you plan to take advantage of any tax credits, consider adjusting your W-4 withholdings. That can increase your paychecks throughout the year rather than giving you one large refund at tax time, which may help with cash flow.

BUILD A PARENTHOOD BUDGET

Once you have a sense of how you’ll proceed with starting a family and the associated costs, as well as the employer and tax benefits that are available to you, you can start the financial planning process.

First, set the financial goal you need to reach, a timeline and a plan for reaching it. Make sure you’re accounting for the ongoing costs of raising a family, not just the startup costs. They might include higher everyday expenses, more expensive insurance, a bigger home, daycare fees and even college savings if you’re able.

Consider whether you (or your partner, if you have one) will want or need to take leave when your family expands, and see what options are available to you. In a 2018 Human Rights Campaign Foundation survey, less than half of respondents said their employer’s leave policy was inclusive of LGBTQ+ families and identities.

FMLA only guarantees the right to unpaid leave. Your state may give you additional rights.

Also take a look at whether you need to increase your emergency fund. We generally recommend you have 6-24 months of expenses in your fund. It may need to increase not only because of higher expenses, but if, for example, one parent plans to stay home with your child and you’ll be relying on one income.

Finally, anytime you’re adding to your family, you should reconsider your life and disability insurance needs. Your policy should cover the potential loss of your income or, if you’re going to be a stay-at-home parent, the value of the household labor that would need to be replaced if something happened to you.

WORK WITH A FINANCIAL ADVISOR WITH EXPERTISE IN LGBTQ+ CONSIDERATIONS

While the right to marry has alleviated some of the special financial planning considerations for LGBTQ+ couples, it’s still critical to work with a financial advisor who understands your unique needs and personal experiences. The trust you place in your advisor – and the feeling of being clearly known and understood – can't be taken lightly.

At Edelman Financial Engines, our Diverse Planning Needs training program is designed to help our advisors better serve the needs of people from different backgrounds, including the LGBTQ+ community. Whichever advisor you choose, look for someone who’s committed to populations that have been historically underserved by the financial industry and one who maintains a focus on  how state laws and benefits may vary for the LGBTQ+ community.