When it comes to the matrimonial affairs of same-sex couples, their drafting considerations differ from heterosexual couples.
By Peter F. Zupcofsky
Counseling clients contemplating a same-sex marriage is not business as usual for the family law attorney. Since the Massachusetts Supreme Judicial Court decision of Goodridge in 2003, which conferred on same-sex couples in Massachusetts the same duties, rights, and obligations of marriage afforded to heterosexual couples, the reality of such marriages, divorces, and estate planning is that they are not all governed by the same set of rules. The resulting myriad complexities are daunting to counsel representing the parties, to the parties themselves, and to judges before whom such cases are brought. In essence, the divorce of the same-sex couple is not divorce as usual. Likewise, a same-sex couple contemplating a premarital agreement or entering into a separation agreement needs to be advised about a very different reality than that confronted by the heterosexual client.
The key factor causing such complexity is the federally enacted Defense of Marriage Act (DOMA) of 1996, which provided each state with the ability to determine whether to allow same-sex marriages or unions within its borders, and the right to determine whether it would recognize same-sex marriages performed legally in other states. Likewise, DOMA mandates that the federal government shall not recognize same-sex marriages and, therefore, any and all rights, duties, and obligations created under the aegis of the federal regulatory and statutory scheme that apply to married heterosexual couples, do not apply to married same-sex couples.
The result is a whole host of unanswered questions affecting the portability or recognition of the marriage, including taxation implications; whether a child is deemed to be born of the marriage; and the ability of couples to have access to the courts, obtain a divorce, and address custody, support, property transfers, division of assets, and retirement planning issues. In fact, most states do not recognize the validity of legally performed same-sex marriages from other states. Presently some states will recognize same-sex marriages performed in other states, although they will not allow same-sex marriages to take place within the state; such would be the case of New York, New jersey, California, and the District of Columbia.
At this time, same-sex marriage is recognized and granted in five states: Massachusetts, Connecticut, Iowa, New Hampshire, and Vermont. A sixth state, California, had granted same-sex marriages up until the so-called Proposition 8 Referendum dismantled that right. Other states, such as New York and also the District of Columbia, are seriously considering the granting of same-sex marriages. Whether practicing in the group of five states where same-sex marriage is permitted or outside of that group, it is incumbent upon the family law practitioner to know how to advise clients.
The issues faced by same-sex couples marrying are many and include the following:
- Marriage portability, i.e., will the marriage be recognized in states other than where the ceremony was performed.
- The impact of the marriage, presently in place or planned, on children of the parties.
- Economic issues, i.e., the support of the parties, the division of assets, purchasing of a house and the form of ownership, estate planning, retirement benefits, tax issues, and gifting.
- Premarital legal counseling can be critical for gay and lesbian clients contemplating marriage. This is particularly true because marriage may not provide the benefits anticipated by the act.
- Many couples begin the process of commingling assets before their marriage. It may be helpful to discuss such commingling with your gay or lesbian client. Highlight the potential adverse tax implications. For example, titling a home jointly may result in a gifting situation and require payment of gift taxes by the party making the gift. Likewise, in the event of divorce, transferring title to a house from both parties back to the original owner would result in a taxable situation and possible realization of capital gains.
- Another important topic is the problem of “no way out.” This has serious implications for same sex couples marrying in one state but ultimately moving to a state where the marriage is not recognized. Seeking a later divorce may be no easy task. A state that does not recognize the parties marriage will not grant the right to seek a divorce To obtain a divorce the parties or at least one party would have to move to and meet the jurisdictional requirements of a state that recognizes their marriage This creates difficulties for a client who wants to move on with a new relationship and perhaps, marry again. The parties would be in a difficult legal quandary.
- Apart from the desire to publicly express mutual love for each other and to hold themselves out as spouses, the real practicalities of marriage need to be addressed and understood, given the particular needs of any couple contemplating a same sex marriage.
A state that does not recognize the parties’ marriage will not grant the right to seek a divorce
Premarital agreements for same-sex couples are even more compelling and important than for heterosexual married couples, given the lack of recognition of same-sex marriages in most states, the unavailability of the tax scheme to divorcing couples, and the unavailability of some retirement and death benefits that stem from the federal government, primarily through the Internal Revenue Code and its regulations, as well as ERISA. Likewise, there are state tax implications.
Key among the issues that could be addressed in a premarital agreement between same-sex couples is the issue of “portability”. While same-sex marriage may be recognized by a limited number of states, if a marriage is challenged and not recognized, a whole host of issues can come into play. In Massachusetts, as would be expected in other states where same-sex marriages are allowed, a child born during the marriage is presumed to be the child of both parents, even when both parents happen to be women. Legitimacy is presumed; regardless of the fact that one parent may have no biological connection to the child. However, this presumption cannot be relied on to be upheld and ratified or confirmed out of state. To that end, it may be important to address in the premarital agreement proactive steps toward adoption of any children.
It also may be important to address the rights and responsibilities regarding health issues for a sick spouse and hospital visitation. A health care proxy may help approximate the kinds of rights that would normally be afforded to the spouse of someone who is in a medical emergency. If a marriage is not recognized and the decedent does not have a will, one of the most glaring issues to arise is that the surviving spouse will not be recognized as a spouse and, therefore, will receive nothing from that estate.
Obtaining a divorce is and will continue to be problematic for same-sex couples in most of the United States. It may be wise to address this issue by requiring the parties to obtain jurisdiction in an appropriate state or to draft an agreement that becomes a contract and is recognized as such and would be enforceable apart and aside from the marriage. Likewise, consider addressing upfront issues such as the impact of taxation and the inaccessibility of the “alimony” scheme. In this way, the adverse tax consequences of transfers, be they in the form of capital gains or gift taxes, can be addressed and avoided as much as possible.
Along with the creation of the premarital agreement should be some significant financial planning to avoid the pitfalls of certain transfers and payments in the event of divorce or the death of one party during the marriage. The premarital agreement can address many of the shortcomings resulting from the effects of DOMA on a host of issues, including additional tax burdens on a payor making transfers that would be taxable to a same-sex married couple but not taxable to a heterosexual married couple. The agreement could also be helpful in the context of retirement and pension benefits under ERISA.
Just as DOMA complicates marriage for same-sex couples, it also complicates estate planning. As a result of the unavailability of tax-free transfers between spouses upon one spouse’s death, estate planning must be done very carefully. Portability affects the need for estate planning as well.
Since most states do not recognize same-sex marriage, if at the time of death, a party resides in a state not recognizing the marriage, he or she could not be considered a spouse, and, therefore, the surviving spouse would not be entitled to an interstate share under state law. This also leads to complications surrounding burial, funeral plans, and the like.
Likewise, it is important to advise clients who have parents or other relatives who may wish to provide in their estates for the gay or lesbian child’s children, that the child ought to be named specifically and not just included as part of a class, such as “grandchildren.” If the estate plan goes into effect in a state that does not recognize gay/lesbian marriage, such a child may not be considered a member of the benefiting class.
By way of example, Mary and Jane marry in Connecticut. Mary has a child through artificial insemination. That child is considered a child of the marriage and, therefore, a child of Mary and Jane. Jane’s father resides in Florida. His will provides that issue of Jane shall be entitled to share equally in his estate plan. In that instance, any children born of the marriage of Mary and Jane would not be entitled to share in Jane’s father’s estate because Florida law would apply to probate of the estate and would not recognize the child as an “issue” of Jane. This is a compelling reason to have a formal adoption proceeding and to advise, again, that family members specifically name children of such marriages in a will if they intend such children to share in their estate.
Another particular problem is the unavailability of surviving spousal benefits that would ordinarily go to a spouse who has retirement benefits. Perhaps the most visible example of this would be the case involving Dean Hara, the surviving spouse of late congressman Gerry Studds. Hara was denied congressional retirement benefits afforded to straight surviving spouses.
Ultimately, all the complexities come to a head when a same-sex couple seeks a divorce. The first issue is whether the divorcing same-sex couple resides in a jurisdiction that will recognize the marriage and, therefore, be in a position to provide access to the courts for purposes of a divorce. This is the recognition-of-marriage issue discussed above. If the marriage is not recognized, the state will not allow a party to such a marriage to file a complaint for divorce, and, therefore, the whole host of statutory enactments and case law dealing with divorce will not be available. Needless to say this will have a severe impact on any children of the marriage; provision of support; restraining orders; division of assets, including real estate, bank accounts, retirement benefits, and the like.
Even when the portability issue is overcome and the parties live in a state that recognizes same-sex marriage, divorce remains complicated and creates a very different picture than that confronted in a heterosexual marriage. In dividing up assets and providing for support, complications arise immediately. Since the provision of alimony would not be recognized, one party ordered to pay support to the other would not be eligible to deduct such payments when made. It is not clear just how such payments would be treated for taxation purposes at both the state and federal level. Would the recipient need to report support as income, whereas the payor would have no tax benefit? Might support payments be a gift? These questions have yet to be addressed by the departments of revenue or the legislatures in various states.
Division of assets becomes even more complicated and clouded. Typically, certain assets transferred between parties are found in most marriages. They include a marital home, bank or stock and savings accounts, retirement benefits, and personal property. In the straight divorce world, any and all of these transfers are non-recognizable, without tax implications between the parties. That is not the case for same-sex couples. For example, let’s assume the marital home is jointly owned and is valued at $1million with a $250,000 basis. It is agreed that the home is to be transferred to one party. This transfer would result in a taxable event with implications both for gifting and capital gains taxation. There would be a $500,000 exemption, with $250,000 of capital gain realized. Further, the transfers may be considered as gifting of $375,000. Alternatively, if the house was ordered to be sold, the parties would be able to utilize the $500,000 capital gains exclusion.
However, what if the marital home had been held in one name? In that instance, unlike a same-sex married couple, unmarried same-sex couples would have only $250,000 capital gains exclusion. Query whether the gift tax exception for transfers made in release of support rights and transfers made pursuant to a court order could apply. Moreover, the application of DOMA to these exceptions cannot be ruled out in the same-sex-divorce context.
As with the transfer of the marital home, capital gains and gift tax implications would follow any other transfers contemplated between parties to the same-sex divorce.
Sample Premarital & Separation Agreement Provisions
Will a Massachusetts same-sex marriage be recognized in other states, or other countries? If challenged and not recognized, a whole host of issues can come into play and be addressed by a premarital agreement.
Sample language (portability)
The recognition of same-sex marriages in other jurisdictions is questionable at the time of executing this premarital agreement. Therefore, the parties agree to the following:
- In the event a child is born (or adopted) during the marriage, it is agreed that the parties will undertake to petition the appropriate court to have any such child adopted by a non-biological parent (or the other A parent).
- The parties shall mutually execute durable powers of attorney.
- The parties shall mutually execute health care proxies, health care directives, or the like, as may be available in the jurisdiction within which they reside.
- The parties shall mutually execute estate-planning documents.
- In the event that either party wishes to end the marriage, the parties will take whatever steps are necessary to have the action filed where a divorce may be adjudicated.
Should such dissolution of the marriage be denied solely as a result of the non-recognition of the parties╒ marriage, the parties agree that they will take whatever further steps are necessary, including establishing residency in another state in order to:
- Have a court of competent jurisdiction determine the invalidity of the marriage; or
- In the event temporary orders required incident to divorce proceedings are not obtainable as a result of the non-recognition of the parties╒ marriage, such issues shall be determined by a mediator/arbitrator designated by (counselor) or by his/ her successor.
In the context of premarital agreements and separation agreements incident to a divorce, the tax implications of providing alimony and dividing assets for a same-sex married couple are significantly affected by the unavailability of federal tax laws and regulations, which exclude transactions incident to a divorce between different-sex divorcing spouses as being taxable events. This is a result of the Defense of Marriage Act, 1 U.S.C 7 (1996), which specifically states:
[I]n determining the meaning of any Act of Congress, of any ruling, regulation or interpretation of the various administrative bureaus and agencies of the United States, the word “marriage” means only a legal union between one man and one woman as husband and wife, and the word “spouse” refers only to a person of the opposite sex who is husband and wife.
Sample language (tax issues)
At the time of entering into this Agreement, as a result of the Defense of Marriage Act, the (GX implications of the payment of alimony and transfers of assets between married parties during their marriage and at divorce (governed by the Domestic Relations Tax Reform Act of 1984 and Tax Reform Act of 1986; Omnibus Reconciliation Act of 1993; Taxpayer Relief Act of 1997; Economic Growth and Tax Reconciliation Act of 2001; and specifically, I.R.C. 1041)
(herein “Divorce Tax Scheme”) which allows for deductions of alimony payments, and which makes all transfers tax-free between U.S. citizen-spouses during marriage, and all transfers made incident to a divorce, regardless of how the spouses own the property or why it is being transferred, are not available in determining payments between the parties here to. As a result of the unavailability of the various federal tax laws governing marriage and divorcing parties, the parties have entered into the following determination of spousal support and division of assets, recognizing the tax consequences and implications of the unavailability of such regulations at this time.
Capital gains and gift tax implications would follow any other transfers contemplated
between parties to the same-sex divorce
Another difficulty is the unavailability of Qualified Domestic Relations Orders as they relate to certain retirement benefits. Thus, if a case goes to trial and judgment, attorneys and judges would be unable to consider the divisibility of retirement assets because these assets would not be subject to division. The result could potentially leave one party in a shortfall situation with presently utilizable assets and a large retirement benefit plan while the other party has significant liquid assets but no retirement benefits in the future. Another interesting issue faced by courts in gay and lesbian divorces is the application of certain important factors in determining what would be a fair and equitable division of assets and provision of alimony In Massachusetts, length of marriage affects the award of marital property. Should the court recognize a long-term relationship when parties had not been married for more than five years due to the unavailability of marriage? A commitment ceremony or other kind of public acknowledgment of the relationship may have taken place ten, 15, or 20 years ago. How should a judge weigh the length-of-marriage factor given the unavailability of marriage prior to each state’s recognition date? Needless to say how each judge in each state approaches this issue will be unique and is evolving at this time, but the attorney should be ready to make that argument one way or the other on each side of the issue when representing a party to a same-sex marriage at the time of divorce.
Ultimately, these issues are complicated and ever-changing. As courts, legislatures, and ballot boxes sort out these issues, the family law practitioner will need to be attuned to the shifting status of same-sex marriage.
Peter F. Zupcofska is a partner at the Boston firm of Burns & Levinson LLR concentrating in probate litigation and family law. His areas of practice include will contests, contested accountings, reformation of trusts, premarital agreements, divorce, adoption, guardianship, conservatorships, paternity proceedings, and counseling on same-sex relationship issues. Mr. Zupcofska is also a member of the Family Advocate Editorial Board.
Reprinted with permission.