(Published in the Winter 2014 issue of The Bankers' Statement)

When bankers see news reports about the Defense of Marriage Act (DOMA), Ohio’s Marriage Amendment and recent court cases involving same-sex marriages, they probably think in terms of constitutional, health care, employment and domestic issues.  Secured transactions and collection issues are probably the last things that come to mind when we see these reports.  But bankers should be aware of the status of current law, the issues and the current questions as related to bank lending, secured transactions and collection issues in Ohio.  The issues and questions are fluid and ever-changing as court cases are heard and new legislation is considered.  So, here is a brief background in order to get a grasp on what issues are involved here in Ohio and how these issues impact these transactions.

BACKGROUND: SAME-SEX MARRIAGE AND DEFENSE OF MARRIAGE ACT (DOMA) IN OHIO -

What is DOMA?  It was enacted in 1996 and signed into law by President Clinton (1 U.S.C. § 7).  DOMA in part gives each state the right to refuse recognition of same-sex marriage licenses issued by other states.  DOMA does not prohibit states from allowing same-sex marriages and does not require states to recognize same-sex marriages from other states.  As passed in 1996, Section 3 codified non-recognition of same-sex marriages for all federal purposes, including insurance benefits for federal government workers, social security survivor benefits, immigration purposes, bankruptcy proceedings and filing joint federal tax returns, among other things.

What is the Ohio Marriage Amendment?  Ohio Constitution Art. XV, §11 –provides that only one man and one woman may be in a valid marriage in or recognized by this state and its political subdivisions.  This state and its political subdivisions shall not create or recognize a legal status for relationships of unmarried individuals that intends to approximate the design, qualities, significance or effect of a marriage (adopted Nov. 2, 2004; proposed by initiative petition).  Same-sex couples cannot be married in Ohio.  However, many issues and questions are raised when a same-sex couple gets married in another state and then resides in or conducts business in Ohio.

What is the status of DOMA now? While an important federal case was pending, President Obama’s administration announced that it had concluded that Section 3 of DOMA was unconstitutional.  Although the administration and Office of the Attorney General would continue to enforce the law while it existed, it would no longer defend the law in court proceedings.

The United States Supreme Court issued a writ of certiorari in December 2012.  On June 26, 2013, the United States Supreme Court found Section 3 of DOMA to be unconstitutional.  It held that the U.S. Constitution prevented the federal government from treating state-sanctioned heterosexual marriages different than state sanctioned same-sex marriages. 

SECURED TRANSACTIONS – ISSUES AND QUESTIONS

In all secured transactions, the initial and continued information gathering related to the borrower/debtor/guarantors is important. Requirements for those parties to provide ongoing financial statements, tax returns and other information go a long way in aiding in the collection of debts due and owing and in providing information to the lender with regard to ultimate collectability of the credit.  With this information, the lender gains insight as to what exemptions may be available to the parties; where the collection action/case may be brought; and what kinds of execution proceedings may be available in the future.  Obviously, the state of residence of the parties, whether married or not, or whether same-sex married couples or not, determines what exemptions may be claimed.

Because Ohio’s Marriage Amendment provides that only one man and one woman may be in a valid marriage in or recognized by this state and its political subdivisions, the lender must recognize that information provided by same-sex couples married in a state other than Ohio, but living in Ohio or doing business in Ohio, at this time may differ from information provided by married heterosexual couples.

In reviewing financial information, lenders must be aware of the following differences in information and that the following is not an exclusive list:

Financial information

Tax Returns. A same-sex married couple living in Ohio, but married in a state other than Ohio, may have a joint federal tax return and separate Ohio tax returns.  Why?  For federal returns, same sex married couples have had the opportunity to file joint federal tax returns, on or after September 16, 2013, even if they are domiciled in a jurisdiction whose law does not recognize such a marriage.  In Ohio, each individual in such a same-sex marriage must file a separate state tax return using Form IT 1040 and using the file status “single” or, if qualified, “head of household.”  There are proposals in the Ohio state legislature attempting to change this requirement for separate tax returns, but right now a separate state tax return is required.

Child and Spousal Support Orders. Support orders may be issued in a dissolution/divorce of a same-sex married couple.  However, be aware that residency requirements for dissolution/divorce sometimes make it difficult for same-sex married couples to separate and get a divorce. 

Mortgages on Real Estate – Ohio.

Mortgage. The question that is often asked is if a secured transaction involves a party or parties of a same-sex marriage, must the out-of-state marriage status be recognized in the mortgage or related deed?

Ohio Revised Code § 5302.12 provides a form of mortgage that provides, in part, as follows:

“_________________ (marital status), of ________________ (current mailing address, for ________________ Dollars paid, grant(s), with mortgage covenants, to ____________, of ______________ (current address), the following real property ….”

The last line of the form of mortgage also provides; “______, wife (husband) of the mortgagor, releases to the mortgagee all rights of dower in the described real property.”

Due to Ohio’s Marriage Amendment providing that only one man and one woman may be in a valid marriage in or recognized by this state and its political subdivisions, title companies currently take the position that entries such as Jim Smith, married in New York and Joe Smith, married in New York, are not required in the mortgage or related deed.

Dower. Ohio is one of only a few states remaining that recognize dower.  Dower is defined within Ohio Revised Code §2103.02, and it refers to spouse.  In Ohio, a spouse who has not relinquished dower or been barred from it, is endowed an estate for life in one third of the real property of the other.  Dower can be extinguished.  In the execution of a grant document such as a mortgage by the title holding spouse, dower is often extinguished by a spouse signing and releasing his/her dower rights.  See, section 3.a above.  Again, due to the Marriage Amendment in Ohio, title companies currently do not require a same-sex spouse to sign documents providing for the release of dower because the out-of-state same-sex marriage is not recognized as valid. 

Federal Benefits. Be aware in reviewing financial information that the federal government is prevented from treating state-sanctioned heterosexual marriages different than state sanctioned same-sex marriages.  Parties that may not have been subject to receiving things such as social security survivor benefits, may now be able to receive such benefits, if there has been a marriage.  One thing to note is that there appears to be a distinction between “legally married” and “civil unions” when federal caselaw is applied.

Collection Actions when Collection Actions are Required and a Same-Sex Married Couple is Involved.  The following questions often are raised:

Bankruptcy. Can a same-sex married couple file a bankruptcy proceeding, even if they are residents of Ohio?  In light of the Department of Justice Policy Ensuring Equal Treatment for Same Sex Married Couples, issued by the Office of the United States Attorney General on February 10, 2014, and federal caselaw, the United States Trustee Program determined that it will interpret the terms “spouse,” “marriage” and “husband and wife” within the United States Bankruptcy Code and Rules to include same-sex married couples.  The United States Trustee Program further determined that it will interpret these terms to refer to individuals who are lawfully married under any state law, including individuals married to a person of the same sex who were legally married in a state that recognizes such marriages, but who are domiciled in a state that does not recognize such marriage. 

Based upon the Policy Ensuring Equal Treatment, same sex couples who have been married in another state, despite Ohio’s Marriage Amendment, may file a joint petition under the Bankruptcy Code. 

Witnesses. What witness is needed and will spousal privileges apply if one of the same-sex married couple is required to testify?  The Department of Justice has addressed spousal privileges within its Policy Ensuring Equal Treatment for Same-Sex Married Couples.  However, if the collection action or execution proceeding is brought in a state court in Ohio, the claim of spousal privilege for a same sex spouse will likely not apply.

As the cases progress, there will continue to be additional issues and questions raised regarding review of financial information for secured transactions.  As a final word, the status, issues and ongoing questions related to same-sex marriages, secured transactions and collection issues in Ohio are fluid.  Having an awareness of what some of the issues are will only aid the ongoing effort to address and establish procedures as related to these secured transactions and collection efforts.