The Supreme Court recently struck down the Defense of Marriage Act (DOMA), a 1996 federal law that defined “marriage,” for purposes of more than a thousand federal laws, as limited to a union between a man and a woman. Now, same-sex couples that are legally married will be entitled to the same treatment under federal law as their opposite-sex counterparts.
But not so fast. What does this actually mean? Federal laws regarding benefits afforded to married couples are extremely complex. Different programs have different rules defining who is married, and some programs have no rules at all. This confusion will give rise to numerous policy changes, legislation, and lawsuits. It may take years to see where the proverbial dust settles.
Here are five areas that are now clear as mud.
Problem #1- Federal Benefits: State of Marriage v. State of Residence
Under certain federal programs, some benefits are based on the laws of the state you were married. Other benefits are based on the laws of the state you currently reside. For example, Diane and Jane were legally married in Iowa (a state that allows same-sex marriage) and then moved to Arizona (a state that does not recognize this union.) When a program defines someone as legally married based on the location of the marriage, Diane and Jane are eligible to receive federal spousal benefits. This includes Veteran’s Benefits. So if Diane honorably served in the military, and Jane survives her, Jane may now be eligible for Veteran’s survivor benefits.
But, that same couple would not receive any spousal benefits for programs that define a married couple by their state of residence or “domicile.” This includes Social Security and Medicare benefits. Federal income tax laws are also defined by state of residence. That means, Diane and Jane would still have to file their federal and state tax return as individuals as they currently reside in Arizona.
Problem #2- Death Taxes
Many same-sex partners are rejoicing that they will no longer be taxed at their death. However, federal death taxes are currently at $5.25 million per person BEFORE any taxes are assessed. Most individuals don’t fall within this class to begin with. State death taxes will still be determined by state law, i.e. whether a couple is legally married by the definition of that particular state. Arizona does not currently have a state death tax.
Problem #3- Inheritance
Inheritance is ruled by state law. In states that do not recognize same-sex marriage, a same-sex partner can only inherit money that is specifically left to them in a legally executed Will or by state statute. In Arizona, the inheritance statute does not include a same-sex partner as an heir. If Diane dies without having executed her Last Will, Jane will not be legally entitled to receive anything.
Problem #4- Bankruptcy
Bankruptcy laws have both federal and state law components. Diane and Jane could file bankruptcy in Arizona as a married couple, however, they would only be entitled to claim one set of state exemptions. This means they could only keep the assets that an individual would be entitled to keep. Whereas, a legally married couple under Arizona law would be able to double those exemptions, in effect, double the amount of assets they are able to keep in a bankruptcy proceeding.
Problem #5- Access to Medical Information
Under the federal Healthcare Insurance Portability and Accountability Act, (HIPAA) a healthcare provider may only release medical information to specific people and in specific situations. A person may give written consent to their medical provider to allow their same-sex partner access to this information. In an emergency situation when there is no written consent, the hospital may only release information to a person “legally authorized to make healthcare decisions on an individual’s behalf.” In Arizona, one can only be legally authorized in a writing that is either witnessed or notarized: verbal consent will not work.
So now what? All individuals, regardless of their marital status, can take proactive steps to protect themselves and their loved ones. Same-sex partners in Arizona should work with a qualified estate planning attorney, tax professional, and financial planner to ensure they understand how these changes will directly affect them and plan around the negative consequences.
