Section 3 of the “Defense of Marriage Act (DOMA)” previously defined “marriage” as a legal union between one man and one woman who are husband and wife, as well as a “spouse” as a person of the opposite sex who is a husband or a wife. Last week in Windsor v The United States, the Supreme Court deemed this law to violate the equal protection clause of the Fifth Amendment, affirming both lower court decisions. The Court determined that it specifically excluded homosexual couples and provided for disparate treatment under thousands of federal statutes and regulations.
This new ruling will have a number of important financial considerations, including estate planning issues and income tax and social security benefit planning opportunities. The Windsor case was brought about as an estate issue. Edie Windsor was required to pay $363,053 in estate tax when her wife died because her marriage did not fit the federal definition of “marriage.” She was denied the marital exemption that straight couples enjoy. She then sued and ultimately won.
If a state allows a same sex marriage, then all of the federal benefits allowable to straight couples are now granted to gay couples. If a state does not allow same sex marriage, the ruling will not apply. For example, In Oregon we allow gay couples to file as “registered domestic partners (RDP),” thus they are granted state level benefits. However, an RDP union is technically still not considered a “marriage” Same sex couples are allowed to file joint returns for state income tax, but are still required to file single at the federal level. The IRS and Social Security Administration define marriage based on where you reside, not where you were married. It is unclear whether or not the IRS is going to consider Oregon’s registered domestic partnership as a marriage for income tax purposes.
No doubt the IRS will issue new regulations with respect to how this situation will be treated, and we will be sure to keep you updated when they are issued. Please feel free to contact us should you have specific questions regarding this important new ruling.