Planning for Same-Sex Couples

March 22, 2012

Authored by: Stacie J. Rottenstreich and Karin Barkhorn

Same-sex marriage is currently permitted in Connecticut, Iowa, Massachusetts, New Hampshire, New York, Vermont, Washington, D.C. and Washington. The individuals who marry in these states have the ability to enjoy state level rights based on their marital status. Rights granted under state law to married couples who divorce are available to same-sex couples who marry. Examples of such rights include spousal maintenance or alimony and equitable distribution of marital property. Similarly, rights granted under state law to married couples upon the death of one of the parties are also available to same-sex couples who marry. Examples of such rights include rights regarding intestate succession (the distribution of a decedent’s property when he or she dies without leaving a valid Will), the right to receive an elective share (many states require a decedent spouse to leave a portion of his or her property to his or her spouse at death) and the right to receive a state estate tax marital deduction.

However the Federal Defense of Marriage Act (DOMA) expressly prevents Federal recognition of same-sex marriages. Under DOMA, the word marriage means only a legal union between one man and one woman as husband and wife. Accordingly, there are many inconsistencies between state and Federal law. For example, state law would confer on a married spouse certain rights in divorce. However, the corresponding Federal income tax advantage is not so conferred. Alimony or maintenance is treated as income to the recipient for Federal and state tax purposes. Federal income tax law allows the payor to deduct such payments for income tax purposes. The party in the same-sex couple who divorces and pays alimony or maintenance cannot take advantage of the Federal income tax deduction, although the state may allow it. This inconsistency should be considered by the parties if they are executing a prenuptial agreement negotiated between the couple before they marry. For example, the parties could agree on one sum for maintenance or alimony assuming that no Federal income tax deduction is available to the payor, but have the sum modified if Federal law were to change so that the net economic position to both parties would still remain as agreed between the parties at the time of the execution of the prenuptial agreement and the marriage.

Similar inconsistencies exist between Federal and state law regarding estate tax benefits at the death of a party. Any property passing to a same-sex surviving spouse upon the death of the first spouse to die will not qualify for a Federal estate tax marital deduction. Similarly, transfers between spouses during marriage may incur Federal gift tax or use of one spouse’s gift tax exemption. This creates a tension for the same-sex couple, which does not exist for the heterosexual married couple. Careful estate and transfer planning can help alleviate some of this tension.

While several of our state legislatures have allowed for same-sex marriages and confer state rights on the married couple, as long as DOMA is good Federal law, Federal rights and benefits are not conferred on the couple. Parties to same-sex marriages need expert planning and advice to protect the rights of each of the parties.