Navigating the Financial Pitfalls of Marriage Equality
It is no secret that the list of benefits married couples enjoy extends far beyond love and companionship. The United States incentivizes marriage by offering lower tax rates, insurance benefits and expansive property rights to married couples. However, the federal government has failed to extend these incentives to LGBT couples.
When Congress passed the Defense of Marriage Act (DOMA) in 1996, it codified two significant precepts. First, Congress defined marriage as between one man and one woman. Secondly, they expressly allowed the states to choose whether or not to recognize same-sex marriages performed in other states. Many legal arguments have developed attacking DOMA’s discriminatory provisions.
Some critics argue that DOMA violates the equal protection clause of the 14th Amendment, which prohibits the states from denying any individual the equal protection of the law. Others argue that the Act denies LGBT couples their 5th and 14th amendment due process rights, which prevent federal and state governments from arbitrarily denying individuals of life, liberty, or property.
Still others argue that allowing states not to recognize same-sex marriage violates the full faith and credit clause found in Article IV of the Constitution, which requires that the states give respect to the laws of other states. I for one, adopt all three arguments as legal truth.
Despite the ban on same-sex marriage at the federal level, some states have successfully established same-sex marriage laws. Since 2004, nine states, the District of Columbia and two American Indian tribes have legalized same-sex marriage. Same-sex marriage has been upheld in court rulings, established through state laws, and passed as referendum by popular vote. Despite these victories, the differences in state law have caused inconsistency and confusion.
Questions like "Where can I get married?" and "Will my marriage be recognized in my home state?" have perplexed tax attorneys, estate planning attorneys and divorce attorneys. In fact, many attorneys in these areas have advised against same-sex couples getting married in a state other than their own when their own state does not recognize same-sex marriage.
Because all states have residency requirements to dissolve a marriage, and because states that do not recognize same-sex marriage will not perform a same-sex divorce, one person in the couple must move to a state that recognizes same-sex marriage in order to sue for divorce. This has been referred to as a "legal strait-jacket" and has put many couples in a precarious position. After all, one of many important rights belonging to married couples is the right to get divorced.
The Government Accountability Office has actually identified 1,138 (!) federal laws and provisions that determine benefits based on DOMA’s definitions of "spouse" and "marriage." These 1,138 federal benefits are not available to same-sex couples that, and thus constitute 1,138 benefits denied on an unconstitutional basis.
These benefits include advantageous tax deductions and exceptions, including gifts not taxable and the estate tax. For example, "gifts not taxable" are gifts between spouses that the IRS has decided not to tax. Unfortunately, a same-sex couple may not take this exemption.
Additionally, the estate tax, which requires the recipient of an estate to pay taxes on it, permits spouses to take the marital deduction on their tax form. Married same-sex couples cannot take advantage of these policies. Pensions, retirement benefits, and social security benefits -- all of which may be collected by a "spouse" -- may not be collected by an individual in a same-sex marriage.
Protecting Yourself From Financial Pitfalls
There are certain rights that same-sex couples simply cannot access at this time but there are measures they can still take to ensure that their financial house is in order and that their existing rights are protected. In fact, there are a minimum of seven documents that every same-sex couple should have:
• Advanced Directive: A "living Will" enables you to provide instructions to physicians relating to prolonged life support in the event of incurable illness.
• HIPAA Authorization: Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), specific authorization is now required to permit medical personnel to release "protected health care information." If you do not have this authorization, it could potentially create a problem in the event a physician needs to release medical information in order to activate health care powers of attorney.
• Hospital Visitation Authorization Form: This document allows you to visit your partner in in any medical or treatment facility and depending on the couples’ wishes. it can also grant you the power to dictate who is allowed in the hospital room to visit your partner.
• Pet Care Directive: This document allows you to determine who will take care of your pet should anything happen to you, what veterinary practice the pet attends, and can leave a special pet trust fund.
• Cohabitation Agreement: If you and your partner live together and share assets, a cohabitation agreement is critical. This agreement is a cross between a prenuptial agreement and a partnership agreement. Not only can the contract dictate how money and expenses will be managed and divided, but it also defines the duties and responsibilities of each party and may reduce taxable gifts.
• Will: Without a Will you are subject to the intestacy laws of your state. These laws adversely affect LGBT couples because they define "heirs at law" as blood relatives or adopted children. Without a Will, your domestic partner may not be entitled to any of your assets, even assets you may jointly own!
These documents will not allow same-sex couples to access the financial benefits they are denied at the federal level and in states that do not recognize same-sex marriages, but they will provide peace of mind and security in their effects.