U.S. Supreme Court Finds Federal DOMA Unconstitutional

By Laurie A. Hunter, Esq.

On June 26, 2013, the U.S. Supreme Court, in a 5-4 decision, determined that the federal DOMA (Defense of Marriage Act) that prohibited recognition of a valid same-sex marriage under state law was unconstitutional. U.S. v. Windsor. In this case, the surviving spouse of a valid same-sex marriage filed a U.S. Estate Tax Return, claiming the marital deduction for assets passing to her. The marital deduction was denied by the IRS, and tax assessed. This decision makes clear that for a valid marriage under state law, the federal government cannot deny benefits to a spouse.

What this decision does not do: It did not address the validity of a state’s "DOMA" laws, which Colorado has passed, in which a state refuses to recognize the validity of a same-sex marriage that is valid under another state’s law. This may be the next case that reaches a court. It also does not address civil unions, that are specifically not marriage. In Colorado’s new Civil Union statute, a valid same-sex marriage in another state automatically converts to a civil union in Colorado. Therefore, it may be that couples married in a state where same-sex marriage is valid, would still not be entitled to spousal benefits in Colorado, but they could be entitled to federal spousal benefits. The effect is unclear at this point.

Civil Unions Become Law in Colorado

On March 21, 2013, Governor John Hickenlooper signed the Colorado Civil Union Act into law, which will become effective as of May 1, 2013. A civil union may be entered into by any two adults (regardless of gender), and will function as the legal Colorado equivalent of marriage. Couples wishing to enter into a civil union must go to their local clerk and recorder and file a license, and the officiant then files a civil union certificate to verify the union. Please note that a civil union will supercede any recorded beneficiary designation.

Although civil unions are not marriage (the Colorado constitution defines marriage as between a man and a woman only), all of Colorado state laws will apply to partners in a civil union as they do spouses. Partners will have the same statutory rights and responsibilities as spouses. If partners wish to end their civil union, they will have to obtain a legal dissolution of the union, and will be subject to the current laws regarding maintenance, parenting time, child support, and property division. All of the same rights at death will apply to a surviving partner. Just as with marriage, partners in a civil union may enter into an agreement to modify the rights of each partner at both death and divorce.

Despite the change in Colorado law, the federal law is currently unchanged. The federal government has the Defense of Marriage Act (DOMA), which was signed into law in 1996, and defines marriage as only between a man and a woman, and denies federal law coverage for those that have married in a state which has legalized same-sex marriage. This means that for federal law, such as income taxation, social security benefits, estate and gift rules, and federal spousal benefits, partners in a civil union will be treated as if they are both single people. On March 27th, the U.S. Supreme Court considered a case which will be decided based upon the constitutionality of DOMA. Even if the Court decides DOMA is unconsitutional, it is unclear if federal law will apply to partners in a civil union.

Supreme Court to Review DOMA Challenge

We had earlier highlighted the Second Circuit opinion holding federal DOMA invalid and allowing the marital deduction against the federal estate tax for a same-sex widow, in Windsor, 110 AFTR 2d 2012-6370 (2012 CA2). The U.S. Supreme Court has now agreed to review this case, so we should know in 2013 whether same-sex couples who are legally married under state law are entitled to the same federal tax benefits as heterosexual married couples. Stay tuned!

Another Appeals Court Strikes Down DOMA

The Second Circuit in Edith Schlain Windsor v. U.S. (CA 2 10/18/2012) Docket No. 12-2335-cv(L), held that a surviving spouse in a legally married same sex couple is entitled to the federal estate tax marital deduction, and therefore a refund of estate taxes paid. The Court struck down the Defense of Marriage Act (DOMA) that prohibits the federal government from recognizing legally married same sex couples for federal benefit purposes. A few other courts this year have also found DOMA to be unconstitutional, but some court watchers believe that this is the case that the U.S. Supreme Court may accept for review. One reason is that Justice Elena Kagan may have had to recuse herself from the other cases, but she was not involved in this one when she was White House counsel.

Court Allows Estate Tax Marital Deduction for Same-Sex Surviving Spouse

In Edith Schlain Windsor v. U.S. (DC NY 6/6/2012) 109 AFTR 2d ¶ 2012-870, a district court found that the federal Defense of Marriage Act (DOMA) was unconstitutional when it denied the marital deduction for gifts passing to a surviving spouse married under Canadian law to a same-sex partner. They were domiciled in New York, a state that also now recognizes same-sex marriage. The IRS denied the application of the marital deduction to gifts passing to the surviving same-sex spouse per DOMA, and assessed $363,000 in estate tax. The surviving spouse appealed, and the court found that DOMA violates the equal protection clause of the U.S. Constitution because there is no rational basis supporting the law. As a result, the marital deduction was applied to the estate of the deceased spouse. The federal estate tax marital deduction is unlimited in amount and postpones any estate tax on assets passing from the decedent to a surviving spouse who is a U.S. citizen. Special rules apply to a spouse who is not a U.S. citizen. (IRC §2056).