Update, June 26: In a 5-4 decision today, the Supreme Court struck down the federal Defense of Marriage Act, which limited the definition of marriage to unions between one man and one woman. The court said it’s unconstitutional to deny legally married same-sex couples equal access to the federal benefits that heterosexual spouses receive.
With the Supreme Court expected to rule any day on the Defense of Marriage Act (DOMA), same-sex couples may—for the first time—qualify for the same federal benefits that heterosexual spouses enjoy. These benefits are significant: they span more than 1,100 perqs, from lower estate taxes and higher social security payments to healthcare and veterans benefits for military families.
If the court strikes down DOMA, it will change the landscape for millions of gay couples, giving them equal protection under federal law. It will also mean changes for a lot of small businesses, tax professionals and financial planners as well. Plus a lot of confusion for the near future.
A little background
Edith Windsor, now 83, had to pay more than $600,000 in estate taxes when her wife and partner of 42 years died—even they were residents of New York, which recognized same-sex marriages.
Windsor is the test case for repealing DOMA. The 1996 law defines marriage for the federal government as a union between a man and woman, only. Under DOMA, the IRS did not recognize Windsor’s marriage and billed her for the full estate tax. But had her spouse been a man, Windsor would have paid nothing.
Supreme Court watchers think there’s a good chance of a repeal, though the court could issue a narrow opinion that would leave things up in the air. Views on gay marriage are changing rapidly: in a Pew Research Center survey this month, three out of four people thought that same-sex marriage was “inevitable”—whether they supported it or not. Even President Obama’s administration declined to defend DOMA.
Here’s how some of these changes might affect you.
1. Taxation and businesses
There’s a whole raft of tax changes that will affect not only same-sex couples, but those who employ them or handle their affairs.
Many companies already pay into health-care plans for the domestic partners of their employees, whether they are same-sex or or not. But right now, a contribution for a spouse is not part of the employee’s taxable income, while a contribution for a domestic partner is considered a “fringe benefit.”
This higher taxable income is a problem for employees, but there’s also a problem for employers. They either end up paying higher payroll taxes for employees with domestic partners rather than spouses, or they have to add another administrative burden to try and factor it out.
If same-sex marriage has equal legal footing, this will be simplified across the board.
Other tax issues that should be cleared up for same-sex married couples include tax benefits for married couples, including head-of-household status, the earned income tax credit and the child tax credit.
2. Estate and financial planning
The DOMA case centers on estate planning, and those taking care of future planning for same-sex couples will also come across some changes.
Right now, a surviving spouse in a heterosexual marriage is exempt from estate taxes, but same-sex spouses—even if legally recognized in their state—are not. Expect a lot of rewriting of wills if DOMA is repealed, and probably an increase in lawsuits as same-sex couples try to redress previous imbalances.
There’s a similar issue with retirement funds. Right now, when one spouse dies, their retirement funds can be transferred to their opposite-sex spouse’s retirement plan. But same-sex couples are forced to deal with penalties and don’t get much of the favorable treatment under the law that opposite-sex spouses do.
3. Military families
A large change will come if same-sex marriages are recognized for federal workers who claim benefits. This includes the armed forces, where, after the 2010 repeal of the “Don’t Ask, Don’t Tell” act, acceptance is growing for same-sex couples but benefits are still denied. Same-sex spouses whose partners are in the military could gain health-care benefits, housing allowances, and veterans’ benefits after the death of a spouse.
4. Social Security
Social Security benefits could also increase, as right now a same-sex surviving spouse isn’t entitled to the same money if their deceased partner was a higher earner, which is true for opposite-sex couples. Gay couples might also receive higher benefits from filing their tax returns jointly.
Every year, people enter the United States legally to be reunited with their spouses. Currently, same-sex spouses are not recognized, and therefore kept apart unless they can find another way to enter the country.
But don’t expect everything to be cleared up when the court rules. While the federal government may recognize same-sex marriage claims (or even rule narrowly and leave things up in the air), it’s not entirely clear how this will play out in states that don’t. Currently the District of Columbia and twelve states allow gay marriage: Minnesota, Rhode Island, Delaware, Maine, Maryland, New Hampshire, Vermont, New York, Connecticut, Iowa and Massachusetts. What will happen to same-sex couples who are legally married in one state, but move to a state that bars gay marriage? It may depend on the federal benefit they seek. The Supreme Court is also ruling this month on the constitutionality of California’s Proposition 8, which bans same-sex marriage. Expect state-to-state differences and, as the confusion is sorted out, more litigation.
- 5 Real Estate Disclosures That Never Happened (but Probably Should Have) (rocketlawyer.com)
- Rule the Road This Summer: Tips for Breezy Travels (rocketlawyer.com)
- Magic Beans, Golden Eggs and the Giant Monsanto Patent Decision (article-3.com)