D.O.M.A. IS DEAD
By a 5-4 vote, the Supreme Court ruled yesterday that Section 3 of the federal Defense of Marriage Act (DOMA) is unconstitutional insofar as it purports to limit the terms “marriage” and “spouse” to opposite-sex couples for all purposes of federal law. This means that couples who are married in states that recognize same-sex marriage will generally be considered married for purposes of federal law. United States v. Windsor, No. 12-307 (June 26, 2013). For example, such individuals will be treated as married for purposes of federal tax laws and for employment laws such as the Family and Medical Leave Act. The decision does not mean that state laws limiting marriage to opposite sex couples are unlawful, however. A full understanding of the implications of the Windsor decision will require further analysis. It would appear that the issue is now dead in the water, however there are factions vowing to appeal so we will see.
In 1996, a ruling by the Hawaii Supreme Court suggested that there might be a constitutional right to same-sex marriage, prompting Congress to pass the federal Defense of Marriage Act (DOMA) to define “marriage” and “spouse” as limited to a union between one man and one woman and excluding same-sex partners. This was during Bill Clinton’s presidency. Many plaintiffs have challenged DOMA as violating the rights of same-sex couples. The Obama administration initially defended the law against challenges in federal court. But in February 2011, Attorney General Eric Holder announced that the president regarded the law as unconstitutional and had instructed the Department of Justice not to defend the statute. Several House Republican leaders, in their role as part of the House’s Bipartisan Legal Advisory Group (BLAG), stepped in to defend DOMA in court.
Even though the Obama administration refused to defend DOMA against challenges in court, however, it stated its intention to continue to enforce DOMA — for example, by refusing to grant same-sex couples who are treated as married in their state of residence the tax exemptions generally available to married couples. In 2012, two federal courts of appeals struck down DOMA as unconstitutional, setting up the challenge in the Supreme Court.
The Windsor Case
Supreme Court rulings on estate tax matters are far between and few at best, so the Windsor decision is worthy of immediate discussion. Edith Windsor and Dr. Thea Speyer had been same-sex partners in New York for nearly 40 years. The two married in Canada in 2007. Two years later, Dr. Speyer died, leaving Ms. Windsor her entire estate—along with a federal estate tax bill of $363,000, which Ms. Windsor would not have had to pay if she had been married to a man. Typically, assets passing from the estate of one spouse to the surviving spouse pass free of estate tax—this is known as the marital deduction, which is one of the fundamental concepts of estate planning. However, the Defense of Marriage Act precluded application of the federal marital deduction to the passing of assets between same-sex spouses. As such, a substantial federal estate tax was assessed against Ms. Spyer’s estate. Ms. Windsor first sought a tax refund, which the IRS refused. Ms. Windsor sued, and both a federal district court and the U.S. Court of Appeals for the Second Circuit ruled that DOMA is unconstitutional and Ms. Windsor is entitled to an income tax refund.
This left the case in a curious position. Federal courts only decide genuine disputes; they don’t do advisory opinions. But here, the Obama administration agreed with Ms. Windsor that DOMA was unconstitutional, so it was not clear that a true dispute remained. Also, generally speaking, the losing party in the court of appeals asked the Supreme Court to hear the case because it seeks a different outcome. The United States asked the Supreme Court to hear the case even though it agreed both with Ms. Windsor’s legal position and with the decision of the Second Circuit.
In agreeing to hear Windsor, the Supreme Court asked the parties to address not only whether the DOMA is constitutional, but also whether the Supreme Court even had the authority to hear the case. The Court wanted the parties to address whether the Obama administration’s failure to defend DOMA robbed it of jurisdiction to hear Windsor, and whether the defense of DOMA by BLAG solved that problem. Because neither party challenged the Court’s jurisdiction, the Court appointed an amicus curiae to argue that position.
The Supreme Court’s Decision
The Court first ruled that it had jurisdiction to consider the merits, saying the case clearly presented a concrete disagreement between opposing parties that was suitable for judicial resolution as initially filed. The federal government’s decision not to defend the constitutionality of DOMA did not eliminate the dispute because the tax refund the federal government was ordered to pay Ms. Windsor is “a real and immediate economic injury,” even if the Executive Branch disagrees with the constitutionality of DOMA. Windsor’s ongoing claim for a tax refund that the United States refuses to pay establishes a controversy sufficient for Article III jurisdiction, the majority ruled.
Furthermore, the Court concluded that BLAG’s participation in the case ensured the adversarial presentation of issues necessary for the court to exercise jurisdiction as a prudential matter. The Court cautioned that this conclusion does not mean that it is appropriate for the Executive Branch to routinely challenge statutes in court instead of making the case to Congress for amendment or repeal. But it found that the immediate importance of the issue presented to the federal government and to hundreds of thousands of persons, coupled with BLAG’s able defense of the statute, supported the decision to hear the case.
DOMA Violates Equal Protection
The Court then ruled that DOMA is unconstitutional because it deprives individuals of the equal protection of the laws guaranteed by the Fifth Amendment. Specifically, it determined that states traditionally have defined who is married within a state, and New York validly exercised that power in deciding that same-sex couples could be married under New York law. In extending marriage to same-sex couples, New York and other states have conferred upon those individuals a “dignity and status of immense import,” the Court said.
DOMA ignores and interferes with the state’s decision to recognize same-sex marriages without a sufficient federal justification, the majority stated. First, by refusing to recognize same-sex marriages in all circumstances, DOMA essentially stigmatizes some marriages recognized by the state, and the individuals in those marriages, as second-class. Second, DOMA creates two contradictory marriage regimes within the same state, and forces same-sex couples to live as married for the purpose of state law but unmarried for the purpose of federal law, thus diminishing the stability and predictability of basic personal relations the state has found it proper to acknowledge and protect. Four dissenting justices believed that the Obama administration’s failure to defend the statute meant that the court lacked jurisdiction to hear the case. They also would have found that DOMA is constitutional. It should be noted that the Windsor decision does not address whether state laws limiting marriage to heterosexuals are unconstitutional.
Proposition 8 was a California ballot proposition and a state constitutional amendment passed in the November 2008 state elections. The measure added a new provision, Section 7.5 of the Declaration of Rights, to the California Constitution, which provides that “only marriage between a man and a woman is valid or recognized in California.”
On January 11, 2010, Federal District Court Judge Vaughn Walker began hearing arguments in Perry v. Brown. The case was a federal-constitutional challenge to California Proposition 8, a voter initiative constitutional amendment that eliminated the right of same sex couples to marry, a right which had previously been granted after the California Supreme Court found that Proposition 22 was unconstitutional. On August 4, 2010, Walker ruled that Proposition 8 was unconstitutional “under both the Due Process and Equal Protection Clauses” and prohibited its enforcement.
In the California case, Hollingsworth v. Perry, the 9th U.S. Circuit Court of Appeals had last February voided the same-sex marriage ban but ruled narrowly, saying, among other things, the state could not take away a right to same-sex marriage after previously allowing it. As a result, same-sex couples in California are once again free to marry. That case was brought by two lawyers, Theodore Olson and David Boies, who were actually opponents in the 2000 case Bush v. Gore, which decided the 2000 U.S. presidential election.
On June 26, 2013, the United States Supreme Court ruled in Hollingsworth v. Perry that the proponents of Proposition 8 did not have legal standing to appeal a U.S. District Courts’ ruling that the proposition is unconstitutional. The state government had refused to defend the law. Same sex marriage in California does not resume until the district court removes a stay of effect it issued, pending appeals, that prevents its ruling from reversing the amendment to the state constitution.
Chief Justice John Roberts said the court would not intervene in a controversy over California’s Proposition 8, which lower courts earlier invalidated. Challengers of that ban on same-sex marriage had hoped the justices would use the case to declare a constitutional right to marriage for gay men and lesbians. By a 5-4 vote, the majority sidestepped the constitutional question and tossed out the case on procedural grounds. The issue on the table was whether the supporters of the Proposition 8 ballot initiative had legal “standing” to defend it in court once the ban was invalidated and state officials declined to appeal. Roberts said no. He was joined by Scalia and three of the liberal justices who had just voted to extend federal benefits to gay married couples: Ruth Bader Ginsburg, Stephen Breyer and Elena Kagan.
Kennedy, meanwhile, countered that Proposition 8 supporters should have legal standing, but did not address whether they should prevail. Underscoring the unusual ideological alliances forged, Kennedy was joined in his opinion by conservatives Samuel Alito and Clarence Thomas and liberal Sonia Sotomayor.
What It Means
The Windsor decision means that the federal law that defines marriage as limited to opposite sex couples for federal law purposes is invalid. Now, couples who are married in states that recognize same-sex marriage will generally be considered married for purposes of more than 1,000 federal laws. As a result, married same-sex couples will be entitled to the same federal tax treatment as married couples generally. The decision will also impact many practical questions, such as whether such same-sex couples will be entitled to social security benefits based on the earnings and status of a same-sex spouse. As to Proposition 8, we are left, for the time being with the Federal opinion of Vaughn Walker which ruled Proposition 8 was unconstitutional. Two senators have already introduced legislation to repeal DOMA and the Attorney General is rushing to allow same-sex marriages to start in California ASAP.
The following are a few of the key benefits many same-sex couples stand to receive now that the Supreme Court has dispensed with DOMA:
- Survivors’ benefits: DOMA barred gay and lesbian couples from many entitlement and welfare programs, including those tied to Social Security. Same-sex spouses will now be eligible for Social Security survivors’ benefits upon death of a partner, among other forms of assistance.
- Tax-free employee health insurance: Federal law has lagged behind the almost 40% of Fortune 500 companies who offer tax-free employer-provided health benefits to domestic partners. Health coverage for the spouses of gay and lesbian employees will now be available without taxable strings attached.
- Emergency Leave: Current law does not offer gay and lesbian employees time off from work to tend to a domestic partner or that partner’s family member. But the guarantees provided by the Family and Medical Leave Act (FMLA) will soon be available to same-sex spouses.
- Green cards and visas: There are an estimated 28,500 bi-national same-sex couples - meaning one partner is a U.S. citizen or permanent resident and one isn’t - but DOMA did not allow the former to petition for the latter to immigrate. Now, however, gays and lesbians may lobby the federal government for green cards or visas for a non-American same-sex partner.
- Tax Refunds: For those married same-sex couples who may have paid less in federal taxes in prior years had they been permitted to file joint federal income tax returns or claim the marital deduction on the death of a spouse, it’s anticipated that such taxpayers will be filing amended tax returns as soon as possible. There is more to be fleshed out on that issue.
- Estate Tax: The unlimited spousal exemption, allowing spouses to pass property to each other without tax consequence, will apply to same-sex marriages as well. GRITS, GRATS and trust planning can be used. The unlimited marital deduction is Congress’ expression that, for purpose of the estate tax, married persons are treated as a unit, with Congress willing to wait until the second of two spouses dies before exacting an estate tax.
- Gift Tax: Another benefit for same-sex couples as a result of the demise of DOMA is qualification for the unlimited gift tax marital deduction. Married couples are free to make unlimited interspousal gifts without incurring gift taxes, which often facilitates estate tax planning and asset protection planning. Same-sex couples now have the same ability.
- Retirement Accounts: Rollover rights and retirement benefits will apply equally now too.
This will also affect estate planning for many reasons. If this applies to you, we should check your current estate plan and see how you can benefit.