SCOTUS: Same Sex Marriage for All

By:
Jane Bernardini, CPA, PFS
Published Date:
Oct 1, 2015

Throughout my long career as a public accountant, I have never experienced and observed changes in tax laws and federal benefits as sudden as those related to same-sex marriage.  It is important to understand the most important elements of these changes to ensure that the assets of a same-sex couple are properly bequeathed and protected from will contests.  Significant analysis and guidance has been conducted on the tax costs of living together as a couple without the benefits of marriage, and how to best utilize trust agreements, domestic partnership agreements, and powers of attorney to the couple’s advantage.

On June 24, 2011, New York enacted the Marriage Equality Act, which allowed same-sex couples to marry and ensured them of the same state rights as those granted to heterosexual couples; however, these couples were still denied all federal tax benefits and rights under the 1996 Defense of Marriage Act (DOMA). This created a mismatch between federal and New York income tax returns, gift tax filings, and estate tax returns, resulting in additional costs for tax filings and taxes paid for same-sex couples, as well as their exclusion from federal benefits.

On June 6, 2012, nearly a year after New York enacted the Marriage Equality Act, Barbara S. Jones, a U.S. District Judge for the Southern District of New York, ruled that Section 3 of DOMA was unconstitutional in Edith Schlain Windsor v. U.S.  Ms. Windsor was married to her partner, Thea Spyer, who passed away in February 2009.  Ms. Windsor sued the federal government for estate taxes paid in the amount of $363,053, stating that she was entitled to claim the marital deduction under the Equal Protection Clause of the Fifth Amendment.

On June 26, 2013, the Supreme Court agreed with the lower court’s ruling: it ruled that Article 3 of DOMA was unconstitutional under the Equal Protection Clause; however, state restrictions on same-sex marriage were not ruled unconstitutional. Although the decision was a big win for same-sex couples as more than 1,138 federal benefits were made available to them, states disallowing same-sex marriage simply continued to deny those couples state benefits under Article 2 of DOMA. This was significant, as only 14 states recognized same-sex marriage, while four states allowed civil unions or domestic partnerships. This resulted in another mismatch between federal and state tax filings: while same-sex couples were considered married for federal purposes, some were considered unmarried in their state of residence. This created problems not just for tax filings, but for many other issues such as adoption, divorce, and health insurance.

June must be the happiest month of the year because on June 26, 2015, the United States Supreme Court ruled in favor of same-sex marriage once again in Obergefell v. Hodges. Justice Anthony M. Kennedy’s majority opinion held that the “Due Process Clause of the Fourteenth Amendment guarantees the right to marry as one of the fundamental liberties it protects, and that the analysis applies to same-sex couples in the same manner as it does to opposite-sex couples.” Prior to the ruling, 37 states recognized same-sex marriage; now, all 50 states must recognize same-sex marriage, and can no longer deny the benefits of marriage to same-sex couples. 

Obergefell arrived at the Court through several lawsuits occurring in Ohio. James Obergefell and John Arthur were married in Maryland in 2013, as their state of residency (Ohio) did not recognize same-sex marriage. Mr. Arthur died several months later.  The Ohio Department of Health refused to indicate that Mr. Arthur had been married on his death certificate or list Mr. Obergefell as the surviving spouse. The Court’s ruling in Obergefell, in essence, has found Article 2 of DOMA to be unconstitutional.

Justice Kennedy also noted in his opinion that “without the recognition, stability and predictability marriage offers, their children suffer the stigma of knowing their families are somewhat lesser. They also suffer the significant material costs of being raised by unmarried parents, relegated through no fault of their own to a more difficult and uncertain family life. The marriage laws at issue here thus harm and humiliated the children of same-sex couples.”

The Obergefell ruling now allows same-sex couples to legally marry in all 50 states; it prohibits dissenting states from imposing bans upon same-sex marriage as well as from refusing to recognize same-sex marriages performed outside the state.  This opens the doors for certain federal rights to gay and lesbian couples, not only with regard to tax benefits but also with regard to parental rights. This ruling, for example, was great news for April DeBoer and Jayne Rowse, who have lived together for ten years, own a home together, and have three children.  Per Amy Howe’s post on SCOTUSblog of April 27, 2015, April and Jane wished to marry, but their home state, Michigan, denied them this right.  Michigan laws also denied them the ability to jointly adopt their three children, so April adopted one child while Jayne adopted the other two.  This resulted in April’s child not being covered under Jayne’s employer health insurance.  If one parent were to die, the other parent would not have legal custody to her partner’s children.

Couples who married outside a state of residency that previously did not recognize their marriage should consider the following:

- Amend previously filed income tax returns from single to jointly filed to obtain refunds of overpayments of tax.

- Amend gift tax returns for gifts made to spouses to obtain refunds of gift taxes paid and to reinstate the lifetime exemption (applicable exclusion).

- Consider gift splitting for gifts made to individuals other than the spouse.

- Amend estate tax returns that did not take advantage of the marital deduction.

- Review wills and other estate planning documents to take advantage of the unlimited marital deduction.

- Consider portability of the unused exclusion of a deceased spouse.

- Review retirement documents for the designated beneficiary. 

- Under ERISA pension plans, the spouse will automatically be considered the beneficiary.

- Review elections made after the marriage for waiver of joint and survivor annuity payments.

- Apply for spousal or survivor social security benefits.

- Consider spousal rollovers of inherited IRAs, and contribute to spousal IRA accounts.

- Review insurance policies previously obtained to pay estate taxes.  These policies might no longer be needed due to the permitted marital deduction.  Survivor policies would be more suitable if there are children.

- Non-citizen spouses can now apply for permanent residence or citizenship. This decision should be weighed carefully, as it changes the tax implications of the non-resident.

- You may now be able to have a divorce proceeding in your state of residence, even though married in another state. Previously, same-sex couples needed to return to the state of marriage, which required several months or a year of residence before granting the divorce. Upon divorce, a spouse might qualify for alimony payments.

- Unmarried couples who entered into registered domestic partnerships or civil unions may now want to consider marriage in order to obtain the many benefits federal and state governments give to married couples.


bernardiniJane E. Bernardini, CPA, PFS, is a tax partner at Anchin, Block & Anchin LLP and a member of the firm's Family Office/High Net Worth Services Group. She has more than 30 years of experience providing high-net-worth individuals and family offices with a full range of estate planning and wealth preservation services. She specializes in estate planning, gifting and charitable giving, the preparation of estate and income tax returns, and foreign trust planning and administration. Additionally, she manages the financial planning for multi-generational families, including asset protection planning and planning for long-term financial security and wealth preservation. Ms. Bernardini is a member of the NYSSCPA Estate Planning and Family Office committees, the Personal Financial Specialist Division of the AICPA, and the Financial Women's Association. She was formerly on the board of directors of the Estate Planning Council of NYC and is a member of the Society of Trust & Estate Practitioners. She has lectured for the NYSSCPA on planning issues regarding nontraditional estates. She received a B.B.A. from Baruch College. Ms. Bernardini can be contacted at Jane.Bernardini@anchin.com or (212) 840-3456.”

 
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