What Federal benefits should be afforded to same-sex spouses as a result of the Supreme Court's decision?
The Supreme Court's rulings yesterday in United States
v. Windsor and Hollingsworth v. Perry will have
far-reaching legal implications for same-sex couples in the United
States.
In delivering the opinion of the Court in Windsor,
Justice Kennedy stated:
"DOMA undermines both the public and private significance of
state-sanctioned same-sex marriages; for it tells those couples,
and all the world, that their otherwise valid marriages are
unworthy of federal recognition. This places same-sex couples
in an unstable position of being in a second-tier marriage.
The differentiation demeans the couple, whose moral and sexual
choices the Constitution protects, ... and whose relationship the
State has sought to dignify. And it humiliates tens of
thousands of children now being raised by same-sex couples.
The law in question makes it even more difficult for the children
to understand the integrity and closeness of their own family and
its concord with other families in their community and in their
daily lives.
The federal statute is invalid, for no legitimate purpose
overcomes the purpose and effect to disparage and to injure those
whom the State, by its marriage laws, sought to protect in
personhood and dignity. By seeking to displace this
protection and treating those persons as living in marriages less
respected than others, the federal statute is in violation of the
Fifth Amendment."
These words struck down Section 3 of the Defense of Marriage Act
("DOMA"), which defined the word "marriage" at
the Federal level to mean only "a legal union between one man
and one woman as husband and wife", and the word
"spouse" as only "a person of the opposite sex who
is a husband or a wife." Windsor did not
address Section 2 of DOMA, which allows states to refuse to
recognize a same-sex marriage legally entered into in another
state.
The Court dismissed Hollingsworth v. Perry on procedural
grounds, stating that the proponents of California's
Proposition 8 did not have standing to appeal the lower courts'
rulings declaring the proposition unconstitutional. As a
result, the United States District Court's ruling stands, and
clears the way for same-sex marriage in California (more
below). If the Court had found that the supporters of
Proposition 8 had standing, it would have had an opportunity to
rule on the constitutionality of same-sex marriage bans across the
country.
The combined holdings mean that those couples who were legally
married in California (before Proposition 8 and after
Hollingsworth v. Perry), Connecticut, the District of
Columbia, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New
York, Vermont or Washington (or who will be married in Delaware on
or after July 1, or Minnesota or Rhode Island on or after August 1)
and reside in one of those states will now be treated as spouses
for purposes of over 1,000 Federal laws.
Where a same-sex couple was legally married in one state but now
resides in a state that does not recognize same-sex marriage, the
couple will not be afforded the benefits of married couples in
their state of residence; moreover, as noted by Justice Scalia in
his dissent, uncertainty remains as to whether such couple will be
considered married for Federal purposes. It is speculated
that action by the executive branch may resolve this uncertainty by
applying a uniform, Federal agency-wide definition of
"marriage" as being determined by the state of
celebration, and not the state of residence.
Implications for Same-Sex Spouses
Here are some of the Federal benefits that should be afforded to
same-sex spouses as a result of the Supreme Court's decision in
Windsor:
- The ability to pass wealth from one spouse to the other at death without the payment of Federal estate taxes, thanks to the marital deduction, and the ability to inherit the first deceased spouse's unused estate and gift tax exemption. These changes will have a substantial and favorable impact on the ability to do estate planning for same-sex spouses.
- Deferral of income recognition when a surviving spouse inherits a deceased spouse's IRA or other qualified retirement plan, as the surviving spouse can "roll over" the account to his or her own retirement account, potentially deferring the required dates for distribution.
- The ability for a wealthier spouse to support a less wealthy spouse without the concern of making taxable gifts, as the marital deduction also applies to gifts between spouses.
- Splitting gifts to treat a gift made by one spouse to a third party as having been made one-half by each spouse.
- Simpler Federal income tax returns. Same-sex spouses may file joint Federal income tax returns, with the resulting "marriage penalty" for spouses who both work and have comparable earnings, and resulting benefits for spouses who have disparate earnings or where one spouse is a homemaker.
- Social Security retirement and death benefits, with the greatest benefit going to those couples where only one spouse has been employed.
- A U.S. citizen spouse should be able to sponsor a non-citizen spouse for legal permanent resident status.
- Military same-sex spouses will be eligible for benefits such as health coverage and housing allowances, as well as the right to be buried together at Arlington National Cemetery.
Because the Windsor ruling holds that DOMA has been
unconstitutional since its inception, same-sex spouses should
re-examine their past income, gift and estate tax returns where the
statute of limitations has not expired. If filing joint
Federal income tax returns would reduce the income tax liability,
taxpayers may amend the returns and request a refund. Like
the plaintiff in Windsor, estate tax refunds may be
claimed as well. The flip side is that those same-sex spouses
who engaged in sophisticated estate planning to take advantage of
the fact that they were not considered spouses at the Federal level
(by creating common-law grantor retained income trusts and the
like) should immediately revisit their estate plans.
Clients with children or grandchildren who have entered into
same-sex marriages should also re-examine their estate plans, as it
may be necessary to modify the definitions of "spouse"
and "children" or "issue" to ensure the
intended beneficiaries will inherit regardless of whether the
documents are interpreted in a state that permits same-sex marriage
or a state that does not recognize it.
Employee Benefits Implications
The Windsor holding will also have a significant impact
on the administration of employee benefit plans for same-sex
married couples. Eligibility for employee benefit plans has
historically been the purview of plan sponsors. However, such
plans are generally governed by Federal law, and thus have been
prohibited in certain ways from treating same-sex married couples
the same as opposite-sex married couples.
With respect to health benefits, this has meant that, although
employers may have provided coverage to the same-sex spouses of
their employees, such coverage was often not eligible to be paid
for on a pre-tax basis. With the reversal of DOMA, employees
with same-sex spouses will now be eligible for the Federal tax
advantages applicable to spouses. Similarly, same-sex spouses
will now be afforded rights under COBRA when their coverage under
an employer plan terminates.
The decision will also have an impact on retirement plans.
Many legal provisions relating to such plans are tied to the
employee's marital status, including notice and distribution
rules. Such plans should now have to recognize any same-sex
marriage that is valid under state law for these purposes.
Implications for California Couples
It should be noted that, even though it appears likely that
same-sex couples will shortly be able to marry in California, the
issue remains complicated. California Attorney General Kamala
Harris has said that every California county must now recognize the
right of same-sex couples to legally marry, and that such marriages
will resume as soon as the U.S. Ninth Circuit Court of Appeals
lifts its stay on the District Court ruling that declares
Proposition 8 unconstitutional in California and requires the state
to permit same-sex marriage. The Ninth Circuit has said that
it would wait at least 25 days to put the District Court ruling
into effect; consequently, Governor Brown has stated that he
expects same-sex marriages to resume in California in about 30
days. However, proponents of Proposition 8 have indicated
that they believe the decision in Hollingsworth is only
applicable to the two same-sex marriages at issue in that case, and
they will continue to seek legal enforcement of Proposition 8.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.