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DOMA/Prop 8 Ruling Impacts Family Law

By Kristin Long, family law attorney.

Recently, the United States Supreme Court ruled that the Defense of Marriage Act (“DOMA”) is unconstitutional. In Windsor, the Supreme Court ruled “DOMA is unconstitutional as a deprivation  of the equal liberty of persons that is protected by the Fifth Amendment.”

In a related case the Supreme Court in Perry ruled that the proponents of Proposition 8 (which defined legal marriage as that between a “man” and a “woman”) lacked legal standing to appeal a lower court’s ruling that Proposition 8 was unconstitutional. In practical effect this now permits the State of California to resume issuing marriage licenses for same-sex couples.

These cases will have broad impact on family law cases and we will be hearing more about how to implement them in the near future. So, how can these cases influence same-sex couples who want to get married or are already married or in a relationship legally recognized by California or another state? While we do not yet have all of the answers, some have become clear in the wake  of the Court’s decisions.

Same-sex couples in California can now marry the same as opposite sex couples.

Within hours of the Supreme Court’s decisions, Governor Jerry Brown lifted a stay on the state performing marriages for same –sex couples. As of the writing of this blog, many people have been tying the knot and availing themselves of all of the benefits as well as obligations of marriage.

Access to Federal benefits remains unclear.

So, you may have heard now that DOMA has fallen a legally married same-sex couple can take advantage of over 1000 federal benefits. However, before you all decide to spend your honeymoons in line at the Immigration Office, keep the following in mind. Each of the major federal agencies has its own rules and procedures. It may be awhile before the agencies revise their protocols to address the Windsor decision and we really do not know what the height and width of its range will be. Although there are stories that green cards have been issued, you should check with the federal agency that will handle your particular need to see if they are ready to accommodate your situation.

Additionally, the Windsor decision only recognized legally married same-sex couples and did not address those in other legally recognized relationships. While it is likely that each individual agency will begin to recognize California Registered Domestic Partnerships and other state sanctioned relationships, it will be up to each federal program to decide the parameters of the recognition.        

Married same-sex couples can now file joint tax returns.

As some of you well know who are currently in Registered Domestic Partnerships or same-sex marriages, a few years ago the IRS got clever and decided that while the federal government did not recognize same-sex marriage or other legally recognized same-sex relationships, the IRS would recognize and tax the community property holdings that legally flow from these relationships. While folks in opposite sex marriages prepare their joint federal tax returns first and incorporate their information into state tax return, same-sex couples have been in the baffling position of filing separate federal tax returns, creating mock joint federal returns and then incorporating the data into a joint state return. Accountants and many couples  have spent the past few years scratching their heads in consternation and crossing their fingers in hopes of avoiding an audit because the IRS instructions for preparing these returns are so vague.

So, now that DOMA has been shelved, as legally married same-sex couples, you and your spouse can file a joint federal tax return. It is also highly recommended that you visit your tax professional and have them look over your tax returns for the last three years (2010-2012) to determine if  you might benefit from having an amended tax return prepared. This is especially important if one of you is self-employed and files a Schedule C with your tax returns, which may benefit you regarding your future Social Security benefits. You should also discuss whether you can receive a benefit from paying the income taxes on any health insurance you or your spouse received from the other’s employment based health insurance which was previously taxed as income. Although it is still too soon to know how the IRS will handle tax returns filed by same-sex couples during the past three years, you should explore your options with a CPA, Enrolled Agent, or other tax professional.

Finally, it is yet unclear if the IRS will treat RDPs the same as married couples and permit these couples to file joint tax returns. Although this would simplify the pretzel logic of how RDPs currently file their taxes, the IRS is not known for making things more simple and easy to understand. Stay tuned.

Legally married same-sex couples may now be able to take advantage of interspousal transfer rules and spousal support deductions in California divorces.

There are several federal laws that can help reduce the taxes a legally married couple faces when they divide up their community property during a divorce. One of them is called a “non-taxable interspousal transfer.” This means that when a couple splits up their assets and financial obligations, they are not taxed on the division because the federal government treats the assets as community property and jointly owned. It makes sense that a person should not be taxed on something that he or she has already been taxed on and already owns, right? Well, even though it makes sense, this is not how things have been decided when a same-sex couple walks into divorce court. Before Windsor, both people faced paying taxes and sometimes stiff penalties for dividing up their property, retirement accounts and financial obligations because each party had to shoulder half of the entire tax burden regardless of the name on the account or loan etc.

For example, say Chris and Pat need to divide a retirement account in a divorce case in Chris’s name that was funded during marriage with both Chris and the employer’s contributions. Since this account was funded during marriage, half of the money in the account is Chris’s and half is Pat’s. It does not matter that the account was funded with Chris’s income. Nor does it matter that the account was partially funded with employer contributions. What does matter is that the funding of the account was done with community property which includes (among other things) all income earned during marriage as well as all of the employer’s contributions. Since this account belongs to Chris because the account is in his/her name and Pat because he/she is married to Chris and entitled to half because it is community property, then splitting the account and putting Pat’s name on his/her half should not result in a taxable event, right? Unfortunately, prior to Windsor  the answer was a big, fat, painful and resounding “No” and both Chris and Pat would split the taxes owed and the penalty for what the IRS would characterize as an early retirement distribution because they could not recognize the division of the retirement account as an “inter-spousal transfer.”

And just as unfair, let’s say that Chris ends up paying Pat spousal support as part of the divorce. Since Chris and Pat were in a same-sex marriage which was not formerly recognized by the IRS, both Chris and Pat would pay taxes for which opposite sex married couples routinely receive a tax break. In an opposite sex divorce, the person paying support gets a hefty tax deduction and the person receiving the support pays taxes on it. Not so for our heroes Chris and Pat.

Now, with the good riddance of DOMA, it appears that these two examples of tax inequities for same-sex married couples will no longer exist. However, as previously mentioned, the Windsor case only discussed same-sex marriages and not RDPs or civil unions. While it is likely that the IRS will honor other state recognized same-sex relationships for tax purposes (especially because they recognize community property), we will have to wait for the agency to issue its new rules and regulations.

Is it still recommended that same-sex couples who are in legally recognized relationships complete a second parent adoption? 

Yes. Yes. Yes. The Windsor decision does not change our recommendation to complete a second parent adoption even if you are married or in a RDP.  Although the Windsor decision compels the federal government to recognize same-sex marriage, it does not compel individual states to do so. Even if you currently possess a birth certificate with both you and your same-sex spouse or partner’s names on it, a state that does not recognize same-sex relationships does not have to recognize the validity of the birth certificate. In order for the state to be required to recognize the parent/child relationship, a judgment needs to exist confirming that both parents are the legal parents of the child. This is usually accomplished through an adoption judgment, or a parentage judgment if the couple is separated and going through a divorce.

Along with such monumental decisions come many unanswered questions. We will update you in the following months as these questions are answered, both on the federal level as well as the state and local levels.

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Estate planning for same-sex couples changes significantly with DOMA ruling

By Michelle Anderson, Partner and Certified Specialist, Estate Planning, Trust and Probate law, Certified by the State Bar of California, Board of Legal Specialization

The Supreme Court of the United States recently declared the Defense of Marriage Act (DOMA) unconstitutional.  This means that married same-sex couples must be treated the same way as married opposite-sex couples under all federal laws.  We will all be hearing much more about the effects of this ruling in the coming weeks and months.

Of particular interest to estate planning attorneys today is the effect this ruling has on estate planning for married same-sex couples.  California has many married same-sex couples, since same-sex marriage was legal in California for several months in 2008.  However, because DOMA became law in 1996, estate planners have always had to advise their California married same-sex clients that they will be treated as unmarried people for federal estate tax purposes.   Now, married same-sex couples will enjoy the same estate and gift tax benefits as other married couples.

Briefly, estate tax law imposes a tax on an individual’s estate over a certain exemption amount.  However, if you are married, you can leave an unlimited amount to your spouse, and receive a marital deduction for this gift, thus postponing estate tax until the second spouse dies.  In addition, with proper planning, a married couple can have the entirety of their combined wealth preserved for the lifetime use of the surviving spouse, and enjoy a total of two exemptions from estate tax.  For an unmarried couple, the marital deduction is not available, the opportunity to postpone estate tax is not available, and therefore the opportunity to have certain types of joint estate plans enjoyed by married couples is not available.  Now that married same-sex couples will be treated as married under federal law, these planning opportunities have become available.

Further, lifetime gifts are also taxed as part of the same tax system, with a deduction given to gifts between married persons.  This means that a married couple can transfer assets and make gifts between themselves freely, without tax implication.  This lifetime gifting between spouses was not available to same-sex married couples without the need for filing gift tax returns and potentially paying gift tax.  The Supreme Court ruling today establishes parity between married same-sex couples and married opposite-sex couples.

It is important to remember that the benefits of today’s Supreme Court ruling only apply tomarried same sex couples, and would not apply to California registered domestic partners who are not married, or other unmarried same-sex couples.

Married same-sex couples may want to revisit their estate plans in light of these changes in the law.  The effects of the change in law will be far-reaching, increasing planning options available not only for for estates and gifts as discussed here, but also for beneficiary designations on retirement plans, federal tax treatment of community property, and likely many other areas of planning.  In addition, today’s other Supreme Court ruling allowing Proposition 8 to remain overturned, opens the door for same-sex marriage to resume in California.

With DOMA overturned, a same-sex married couple may now enjoy the ability to have their estate planning performed using identical laws and tools as married opposite-sex couples.  This is an exciting day for same-sex couples, and also an exciting day for the estate planning community.

 

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Employers are not Required to Police Meal Breaks

In an important decision for employers, the California Supreme Court, in Brinker Restaurant Corporation v. Superior Court, recently clarified the scope of an employer’s duty to provide rest and meal periods for its employees.

In Brinker, Plaintiff employees brought a class action lawsuit alleging that their employer did not ensure that their meal periods were “work-free”, and did not provide rest and meal breaks in a timely fashion.

The Court ruled that while employers are required to provide employees with meal breaks, they are not required to ensure employees cease all work during such breaks. California law merely requires that employers provide employees with an uninterrupted 30-minute duty-free meal period. This obligation is satisfied if the employer “relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30–minute break, and does not impede or discourage them from doing so.” During the meal period, employees may engage in any activity of their choosing, and the “employer is not obligated to police meal breaks and ensure no work thereafter is performed.

Regarding the timing of rest periods, the Court ruled that rest periods need not be timed to fall specifically before or after any meal period. Employers are obligated to provide employees with 10 minutes of rest for shifts from three and one-half to six hours in length, and two 10 minute rest periods for shifts from six hours to 10 hours in length. While employers must make a good faith effort to permit rest breaks in the middle of each work period, this duty is subject to practical considerations. For example, employers are not required to provide one rest period before a meal break, and one after a meal break, where it is infeasible to do so.

Brinker presents a good outcome for employers. However, the importance of ensuring that an appropriate policy regarding rest and meal breaks is implemented in the work place cannot be understated. Employers should keep detailed time records that set forth when an employee’s shift begins, when rest and meal breaks are taken, and when the shift ends.

To determine if your existing employment practices comply with current California law, contact your attorney.

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Santa Cruz Neighbors Presentation

Here is my 3/20/2012 presentation to the Santa Cruz Neighbors on how to deal with nuisance houses:  Download presentation.

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Improper Classification of Independent Contractors Can Result in Huge Fines

Under newly enacted California law (CA Labor Code Section 226.8), significant fines are levied against any employer who willfully misclassifies employees as independent contractors.  Labeled by some as the “Job Killer Act,” violators will be subject to a minimum civil penalty of $5,000, up to a maximum of $15,000, per violation.  An entity engaged in a pattern of willful misclassification is subject to a minimum fine of $10,000, up to a maximum of $25,000, per violation.  Read More »

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2012 SCCBA Real Property Law MCLE

Click here an outline of the cases discussed by Caleb Baskin & Nathan Benjamin from their February 8, 2012 MCLE presentation for the Santa Cruz County Bar Association’s Real Property Law Section.

 

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What to Expect from the BaskinGrant.com Blog

Our clients are too busy running their businesses, living their lives and enhancing the community to wade through the morass of legal news being made every day. However, some of those developments, whether new laws, new cases or new best practices, can have dramatic impacts on their lives and businesses.

That’s where our Blog comes in. Part of what we do is stay on top of developments in the law for our clients. Some of those, the ones we think may be interesting and helpful to a broader section of the community, we are going to share here. If you read something that resonates with you or that you think would interest others, feel free to share it. If you have questions or want our help addressing an issue, you can contact us at info@baskingrant.com or 831-425-8999.

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The New BaskinGrant.com

Welcome to our new firm web site. The site provides easy to navigate and concise information on who we are, what we do and how we can help you, your business or non-profit achieve its legal goals.

Please explore our Practice Areas to learn more about the areas of the law we handle and our Attorney Profiles to get to know our attorneys. Also, be sure to visit our firm blog (link) and follow our Twitter feed (@baskingrantlaw), both of which will provide updates on areas of the law important to our clients and the entire Santa Cruz Community.

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Welcome to the New Home of the Baskin & Grant Law Firm

After over thirty years on Mission Street, the Baskin & Grant Law Firm has moved and expanded into new offices at 331 Soquel Avenue, Suite 100.

Our new offices offer over twice the space of our old location, more parking and enable us to offer cutting edge amenities such as video conferencing and remote video depositions. We are also proud to be closer to the heart of downtown.

If you haven’t been by yet, contact us to arrange a visit. If you aren’t a client yet or don’t know someone at the firm, let us fix that by contacting us at info@baskingrant.com. We have served the entire Santa Cruz Community for over three decades and are prepared to serve it well into the future.