DOMA/Prop8: A ‘Game Changer’ but plenty of ifs/buts at State level


By Jamie Rubenstein

From New York to San Diego LGBT professionals representing a broad cross section of disciplines rejoiced Wednesday at newfound tax and legal benefits for themselves and their clients following the historic U.S. Supreme Court DOMA/Proposition 8 rulings.

As one Boston finance advisor put it, “DOMA is dead. Now what?” underscoring the huge federal barrier lifted in such areas as social security spousal benefits, joint returns, asset transfers among an array of other items.

Still uncertain, however, and with probably more litigation ahead in state courts is the murky state-by-state recognition and financial/tax treatment of same sex status as the result of the High Court’s interpretation of DOMA and Proposition 8. 

When considering the more than 1,000 federal benefits enjoyed by married heteroseuxals, ”this is a game changer for our many gay and lesbian clients,” declared Jeffrey M. Siegel, a Northampton, Mass. estate planning attorney and vice president of United Wealth Management Group.   

The idea “that couples who dedicate themselves to one another in marriage can now be treated as a married couple in the eyes of the federal government that really makes people smile,” declared Siegel, warning also that while the court’s action is a breakthrough nothing ”is guaranteed” in the future.

“There will be questions on how far back same sex couples can go to file tax refund requests or challenge probate court decisions,” he forecast. 

LGBT attorneys agreed the various state laws present a real problem on job-provided and state provided benefits.

Confusion seems certain to reign at the state level with David Spaulding, head of a New York advisory firm, Domestic Partners Network, chiding the High Court for “taking the easy way out on Proposition 8.”

“By not making an actual decision on the merits of Proposition 8,” the appeal fails the 9th Circuit Court decision to place a hold on a lower court decision, noted Spaulding adding that the court’s action would likely lead Gov. Jerry Brown  to allow same sex marriages to resume statewide at the end of July.

“This is great news for California but it will have absolutely no effect on any other state that currently bars same sex marriage,” he said.

On the other hand, “the court’s definitive majority ruling on DOMA is great news for gay couples in all twelve states that now permit and recognize same-sex marriage. Just 38 to go!” he concluded.

David Hollander, a San Francisco financial advisor, said the court’s decisions have created “an incredibly exciting time for same sex couples” from a financial view.

“Tax codes will now need to change, and I would expect the IRS to have new regulations and guidelines before tax time next year,” he forecast. “I am recommending my clients and all same-sex couples pay special attention to the IRS’s response to today’s ruling. I would also recommend they get some personalized advice in filing taxes. The other thing to look out for will be whether the changes are retroactive- meaning same-sex couples could amend their tax returns going back three years to see if they overpaid.”

On the federal side, he said, “there are many lesser known options about collecting Social Security that can save couples and put them in a better spot financially throughout their retirement.”

Palisades Financial Group, a Scarsdale, N.Y. planning firm, said in a statement that it is reminding legally married clients that despite the tax benefit refunds from DOMA’s overturn, “there are limitations on the time period in which you can bring claims.”

While gay couples in California, the firm points out, will once again be permitted to marry, the decision: ”carries no legal force outside California, and has the peculiarity that California allowed same-sex marriage for a period of time before banning it. 

“But the federal court’s reasoning in this case rejected the legislative rationale for banning same-sex marriage on broader constitutional grounds than the court’s majority followed in Windsor” said Palisades. “Proponents of gay marriage are likely to challenge other states’ bans in federal court. It will be years before we will know if the Supreme Court will adopt lower court reasoning that says gay couples have a constitutional right to get married.”

As for DOMA ruling on Edith Windsor, attorney Michele Sacks Lowenstein, former chair of the Family Law Section of the San Diego County Bar Association and a settlements judge, said “in plain English, the court held that the federal government cannot discriminate against a class of people whose state has chosen to protect.”

“What this will mean long range is that the over 1,000 federal laws which do not extend protection to people in same sex marriages are now required to apply to those people in same sex marriages,” she said.

For example, in a divorce, property transfers between spouses are non taxable under the IRS Code. “Now when a same sex couple gets a divorce, the transfers between them will also not be taxable. This will make much easier for same sex couples and their advisors to divide property, reach agreements regarding alimony and divide pensions without any taxable consequences,” she said.

With respect to financial planning, DOMA appears to be the more important decision. We will no longer have one set of rules for opposite sex couples and another set of rules for same sex couples.  

An interesting question will be that now DOMA has been struck down, what effect will it have on those parties who have already suffered adverse tax consequences as a result of the federal government refusing to recognize these marriages? Will they be allowed to apply for tax refunds? That will be an interesting question to answer, concluded Lowenstein.


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