The U.S. Supreme Court's decisions on two same-sex marriage cases could have far-reaching effects on the financial lives of same-sex couples, legal experts say.
The Supreme Court is expected to issue a ruling this month on the federal Defense of Marriage Act and a California law known as Proposition 8. The decisions could mean same-sex couples will want to review their federal income taxes and estate plans.
Experts on the issues raised by the cases from the law firm McDermott Will & Emery discussed the financial implications during a webinar Monday.
The Defense of Marriage Act, passed in 1996, restricts federal marriage benefits for income tax and other purposes. It requires states to recognize other states' marriage contracts only if they involves opposite-sex couples. At stake in the federal case is whether the government has to recognize a marriage validly performed in any state or jurisdiction.
Proposition 8 says only marriage between a man and a woman is valid in California. In that case, the court could decide whether it is unconstitutional for California to prohibit same-sex couples from marrying.
If the Supreme Court decides it is unconstitutional to ban same-sex marriage, married same-sex couples will want to review their federal tax returns for the last three years to see if they want to refile as married. Currently, the federal government does not recognize same-sex marriages and couples have had to file as married on the state level and as single on the federal level.
“Couples will not be required to refile tax returns, so they should talk to an advisor to see if it makes sense for them,” says Nicole Pearl, private client partner with experience in estate and tax planning for LGBT couples with McDermott Will & Emery. “If couples are not married, they will want to see if it is advisable for them to get married.”
Currently, for heterosexual couples, estates are not taxed until both spouses die, but for same-sex couple they are taxed when one spouse dies. If the court recognizes same-sex marriages, couples will want to amend their estate plans to take advantage of this change, Pearl says.
The decision would probably take affect immediately. “I cannot image them saying something is unconstitutional and letting it continue for some time into the future,” she adds. Twelve states allow same sex marriages and 38 do not.
Employers are hoping the decision will simplify the administrative work connected with paying benefits to same-sex couples, says Todd Solomon, employee benefits partner at McDermott Will & Emery and an authority on domestic partner benefits.