On June 26, the U.S. Supreme Court issued two landmark decisions. United States v. Windsor essentially requires the federal government to recognize same-sex marriage in states where it's legal. Hollingsworth v. Perry potentially will allow same-sex marriage in the country's most highly populated state, California. These 5-4 decisions could dramatically affect tax and estate planning for same-sex married couples, as well as the benefit plans employers and the federal government provide them.
Marriage definition struck down
Windsor concerned the constitutionality of Section 3 of the 1996 Defense of Marriage Act (DOMA), which defined marriage for federal benefits purposes as being between a man and a woman, thus denying federal benefits to same-sex married couples. The Court struck down Sec. 3 as a violation of the U.S. Constitution's guarantee of equal protection under the law.
The female defendant-respondent, who resided in New York (where same-sex marriage is legally recognized) was married to a woman. She sued the government to claim the federal estate tax marital deduction available to heterosexuals when their spouses die. Under the ruling, she'll be able to claim a $363,000 tax refund.
But the Court didn't go so far as to find that same-sex couples have a fundamental right to marry. So, the 30+ states that don't recognize same-sex marriage won't be required to begin doing so.
Nevertheless, the Court opened the doors for same-sex married couples - in states where same-sex marriage is recognized - to claim numerous federal benefits and rights, as well as be subject to some tax burdens, related to marital status.
Proposition 8 left hanging
Hollingsworth involved Proposition 8, a voter-approved California state law prohibiting same-sex marriage that had been struck down by a federal district court. The Supreme Court avoided issuing a decision on Proposition 8, instead finding that the private parties who had intervened to defend the law (after the state of California had declined to do so) didn't have standing.
The Court remanded the case to the U.S. Court of Appeals for the Ninth Circuit to dismiss. As a result, the lower-court ruling will stand, in effect permitting same-sex marriage in California, though additional litigation may ensue.
Tax and benefits implications
Same-sex marriage has already been made legal in 12 states and the District of Columbia. If California is included as the 13th state, about one-third of Americans would reside in jurisdictions where same-sex marriage is legally recognized.
Same-sex married couples in these states should review their tax planning strategies and estate plans to ensure they're taking advantage of all of the opportunities now available to them as married couples - and plan for any new burdens to which they could become subject. Employers will need to keep a close eye on how these developments affect the benefits they're providing. Should you have any questions, we are available to advise you on these opportunities and burdens that are a result of this historic decision.
It will take some time for all of the implications to emerge, but we would be pleased to help guide you through the changes and how they may affect you or your business. In the coming weeks, we will be discussing some of the significant tax implications that affect both individuals and businesses.
Again, should you have any additional questions, please contact your Friedman LLP tax professionals.