THE CASE: U.S. vs. WINDSOR
The Defense of Marriage Act ("DOMA") defined "marriage" as a legal union between one man and one woman and defined "spouse" as a person of the opposite sex who is a husband or a wife. DOMA’s definitions of "marriage" and "spouse" caused same-sex married couples to be denied benefits, rights, and privileges afforded to opposite-sex married couples under more than 1,000 federal laws. On June 26, 2013, in a historic ruling,1 the Supreme Court struck down Section 3 of DOMA that limited "marriage" and "spouse" to persons of the opposite sex, as being in violation of the equal protection clause of the United States Constitution. Importantly, however, Section 4 of DOMA, which allows states (not the federal government) to refuse to recognize same-sex marriages validly performed in other states, remains in effect.2
THE IMPACT
Directly impacted by the Supreme Court’s decision are taxes, retirement benefits, healthcare, Social Security benefits, military benefits, immigration benefits, veteran benefits and bankruptcy, just to name a few. We have highlighted some of the federal benefits that will be equally available to same-sex married couples, at least in those states in which same-sex marriages are permitted or recognized as legal.
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Note: Several questions remain regarding the application of the Supreme Court’s decision as it relates to certain legal rights under certain facts and circumstances. For example, it is not entirely clear whether same-sex spouses afforded employee benefits in states that permit or recognize same-sex marriage will be provided those benefits in states that do not permit or recognize such marriage – including situations in which a same-sex couple legally married in one state moves to a state that does not permit or recognize same-sex marriage. Further guidance from the IRS and the courts is anticipated, and employers (especially those with operations in several states) are advised to proceed with caution in implementing changes (including changes to their employee benefit plans) to reflect the Supreme Court decision.
TAXES
• Married same-sex couples in states that legally recognize their unions will be able to jointly file state and federal income tax returns. It is not yet known if couples married in a state that recognizes same-sex marriage can file joint federal returns if they live in a state that does not recognize same-sex marriages. In states where same-sexmarriage is not recognized, however, individuals may be able to file joint federal tax returns, but will still have to submit single tax forms to the state. Consideration should be given to filing joint amended returns when a refund would be owed.
• Married U.S. citizen same-sex spouses will be able to inherit their deceased spouse’s property without paying federal estate taxes.
• Married same-sex spouses will be able to make unlimited marital deduction gifts to their U.S. citizen spouse. In addition, same-sex couples may elect to split gifts on their federal gift tax returns.
RETIREMENT BENEFITS
• Many retirement plans provide certain spousal protections and distribution options that will now be extended to same-sex spouses, at least in those states that permit or recognize such marriages as valid.
• Certain retirement plans (including defined benefit and money purchase pension plans) must pay survivor annuities (such as qualified joint and survivor annuities and pre-retirement spousal annuities) to a participant’s surviving spouse, unless the coverage has been waived and the spouse has consented to the waiver. The Supreme Court’s decision will allow same-sex spouses to be entitled to survivor annuities and require their consent to waive coverage.
• Defined contribution plans that do not provide survivor annuities as the normal form of payment must provide the participant’s entire vested account balance to the participant’s surviving spouse, unless the spouse has consented to the designation of an alternate beneficiary. Under DOMA, a same-sex spouse was not entitled to payment of the participant’s vested account balance as the participant’s deemed beneficiary and could not prevent the participant from leaving the vested balance to someone else. As a result of the Supreme Court’s decision, the participant’s vested account balance will be paid to the surviving same-sex spouse, unless such spouse consents to the designation of an alternate beneficiary.
• Participants in qualified defined contribution plans must, in certain cases, obtain spousal consent for withdrawals, including in-service withdrawals and hardship withdrawals, and loans. Under the Supreme Court decision, spousal consent will apply to a same-sex spouse to the same extent applicable to an opposite-sex spouse.
• Qualified Domestic Relations Orders ("QDROs") may require the division of a participant’s accrued benefit or account balance between the participant and a former spouse – now, including a former same-sex spouse.
• A same-sex spouse will be able to roll over inherited retirement benefits from their deceased spouse into a retirement plan for the surviving spouse, which is not available to other beneficiaries. Many benefits are associated with a spouse’s ability to roll over retirement benefits, including increasing the period of time over which funds must be withdrawn.
Healthcare
• Married same-sex couples will be able to receive employee health coverage more easily, and to the extent healthcare benefits and coverage are extended to same-sex spouses, such spouses will be eligible for medical leave and health benefits under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"). Previously, when a same-sex spouse received healthcare benefits through his or her partner’s employer, the value of that coverage was taxed as federal income.
• Employees will now be able to obtain health coverage and other benefits for their same-sex spouses more easily and without such coverage and benefits being subject to federal income tax.
• The Supreme Court’s decision does not clearly address whether employers will be required to extend coverage to same-sex spouses, particularly in states where same-sex marriage is not permitted or recognized as valid.
SOCIAL SECURITY BENEFITS
• The Supreme Court’s decision will also afford Social Security survivor benefits to legally married same-sex couples. As a result, same-sex couples will be eligible to receive their deceased spouse’s Social Security checks, if they amount to more than the ones currently being collected.
MILITARY BENEFITS
• Military benefits will be made available to military same-sex spouses following the Supreme Court’s ruling. Previously, DOMA had prevented federal agencies from offering the same benefits to same-sex spouses afforded to opposite-sex military spouses.
IMMIGRATION BENEFITS
• Same-sex spouses who are American citizens will be able to sponsor their non-citizen spouses for U.S. visas, and can qualify for immigration measures toward citizenship. Under DOMA, only marriages between a man and a woman were recognized by U.S. Citizenship and Immigration Services.
WHAT’S NEXT?
The impact of the Supreme Court’s decision will grow to the extent that more states permit or recognize same-sex marriage over time. The decision has far-reaching repercussions in many areas of the law, but many questions remain as to its application to certain legal rights under certain facts and circumstances. Additional guidance from the IRS, the courts and federal and state agencies may be forthcoming. In the interim, employers, as well as same-sex married couples, should seek legal advice before acting in response to this important constitutional decision.
1 U.S. vs. Windsor, No. 12-307 ( U.S., June 26, 2012.)
2 Currently, thirty-five states prohibit same-sex marriages in their constitutions or state laws.
