CIVIL UNIONS AND SAME SEX MARRIAGE:
A Developing Landscape
By: Sandra L. Clapp
Sandra L. Clapp & Associates, P.A.
In June 2013, in the case of United States v. Windsor, the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA) that prevented the federal government (including the IRS) from recognizing a legally-valid marriage of a same-sex couple. In a separate decision issued at the same time, the court did not rule on California’s Proposition 8, effectively allowing states to set their own policy on gay marriage. Because the court did not rule on the broader issue of whether it is a fundamental right for gay people to marry, there will likely be no impact in the more than 30 states that do not recognize gay marriage (currently 13 states allow or recognize gay marriage). The decision in Windsor has created unique planning issues, particularly if the couple resides in one of the states that do not recognize same sex marriage.
In September 2013, the IRS issued guidance to confirm that same-sex couples married under state laws are “married” for all purposes under the Internal Revenue Code, even if the couple move to a state that doesn’t recognize same-sex marriages. The IRS guidance provides that couples in a registered domestic partnership, civil union, or similar relationship will not be treated as “married” for IRC purposes because they are not married under state law.
Under federal estate tax laws, an individual has an amount of assets that can be transferred during lifetime or at death without estate tax (currently $5,250,000). However, a transfer to a spouse does not reduce the exemption, which opens many traditional estate planning techniques to a same-sex married couple. Any estate plan of a same-sex couple prepared prior to June 2013 should be reviewed as it may not take advantage of available estate and gift tax planning options.
The IRS guidance also extends to qualified retirement plans, group health plans, and employee benefits with federal tax benefits. For qualified retirement plans and employee benefits with federally sanctioned tax benefits, the employer must treat the employee’s same-sex spouse as a spouse for all purposes under the plan. These provisions will also apply to employers and employees in a state that does not recognize same-sex marriages.
For federal income tax purposes, a same-sex married couple can now file as married for 2013. The IRS guidance allows (but does not require) a same-sex couple to file for refunds for any open year that the couple was married under state law, but was forced to file as single taxpayers.
In a state that does not recognize same-sex marriage, there will be a number of unique issues that will arise as these federal rulings are developed. Under Idaho law, it is expressly stated that a same-sex marriage violates public policy and will not be recognized as valid. State issues that may develop include inheritance and other statutory spousal rights, property characterization, adoption, divorce, and state income tax filings. Until modified by statute, it is not likely a same-sex couple will acquire assets that are characterized as community property because marriage in Idaho as defined as a “civil contract between a man and a woman.” Thus, the exact ownership of assets acquired by a legally married same-sex couple residing in Idaho is yet to be determined. It is not likely under present law that a same-sex couple can file for divorce in Idaho. Adoption by a same-sex couple is also unknown. Any same-sex married couple residing in Idaho should be diligent about monitoring the state and federal law and developing as much protection as possible through available means to carry out their intent. The impact of the rulings on gay marriage will be a developing topic that will require more frequent review.
This article is not intended to replace legal advice applicable to your situation and should be used only for informational purposes. Consult with your legal or tax advisors before implementing any suggestion contained herein.