Less than a week has passed since the Supreme Court ruled that the federal government must recognize same-sex marriages, and the people who were treated unequally under the law are already seeing major changes.
But as we noted Thursday, not all same-sex couples will be treated equally under the law. For same-sex spouses who live in “non-recognition” states, timing and geography will determine whether they’re eligible for certain federal spending programs, private benefits, and tax requirements, which are still linked in certain ways to residency and state law.
Before the DOMA ruling, this inequality didn’t exist — all same-sex marriages were equally unequal in the feds’ eyes. By creating it, the Court has inadvertently created a whole new set of financial questions, considerations, and predicaments for same-sex spouses.One of the starkest examples, and one that will make a huge difference particularly for wealthy same-sex spouses, is where to live for estate-planning purposes. Same-sex couples in non-recognition states face a tough choice.
“I would recommend that people move out of state to die,” said Deb Kinney, partner at DLK Law Group in San Francisco, which specializes in estate and other financial planning. “If you go die in a state of recognition, you pay no estate tax.”
For people who plan estates, and the couples who hire them, the tiering will create new complications as well, because surviving spouses in non-recognition states will likely be treated differently by their state government and the federal government. And though it’s still unclear how the federal government will rewrite its tax rules, it is clear that state-level estate taxes will still apply to same-sex spouses in non-recognition states.
“You’re going to have to build in all of the provisions that would protect unrelated persons at the state level — meaning they can be challenged, not considered next of kin,” Kinney predicts. “And yet then the federal government saying there’s no estate tax because it’s going to your spouse … you’re going to have to use marital language because of the estate tax.”
But there are other highly consequential issues at stake as well, and they don’t just apply to same-sex spouses living in non-recognition states.
“I think major employers are going to have a hard time recruiting to states that don’t have recognition,” Kinney added. “If you’re a federally recognized couple living in New York or San Francisco or Los Angeles or wherever and your company wants to transfer you to Texas and you’re going to lose all your federal benefits, why would you ever do that?”
These questions crop up across the board.
The National Center for Lesbian Rights, in conjunction with other LGBT advocates, civil liberties groups and their allies, has produced a series of fact sheets differentiating for same-sex spouses how federal law — from bankruptcy to federal student aid to Medicaid to taxation — will or may apply to them, depending on where same-sex spouses live and for how long.
Some of the biggest question marks fall in the realm of federal tax law. Current IRS practice allows spouses to file jointly or separately if they’re considered married in their “state of domicile” rather than in their “state of celebration.” However, the IRS continues to recognize common-law marriages, even when common-law spouses relocate to new states. Thus it remains to be seen whether or how the federal government will adjust its practices to assure that same-sex spouses can file as such even if they reside in a non-recognition state.
Federal departments and agencies will be issuing guidance on these matters in the coming months. And if eventually the Supreme Court recognizes same-sex marriage as a right for every individual in every state, these complications will be moot. But in the meantime, same-sex spouses with the means and the wherewithal will have a bunch of new and unexpected reasons to consider picking up and moving to recognition states.