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.