An opposite-sex couple generally has two choices – they may marry and become husband and wife, or they may not. Either way, their rights and responsibilities under state and federal law are generally well defined.
Illinois recently passed the Illinois Religious Freedom Protection and Civil Union Act (the "Civil Union Act"), which will give an opposite-sex couple a third choice. Instead of marrying and becoming husband and wife, they may enter into a civil union and be treated the same as husband and wife. The Civil Union Act defines the rights and responsibilities of civil union partners under state law, but the rights and responsibilities of opposite-sex civil union partners under federal law are anything but clear.
The Civil Union Act
The Civil Union Act, which becomes effective June 1, 2011, allows two individuals – of the same sex or opposite sexes – to enter into a civil union, with exceptions for underage persons, relatives, and certain others. Individuals who want to join together in an Illinois civil union will need to apply for a certification from the county clerk, and the union can be dissolved only though a process similar to a marriage dissolution.
The Civil Union Act provides that civil union partners are to have "obligations, responsibilities, protections, and benefits as are afforded or recognized by the law of Illinois to spouses." It further provides that, while a civil union is not a marriage, a civil union partner
… shall be included in, any definition or use of the terms ‘spouse', ‘family', ‘immediate family', ‘dependent', ‘next of kin', and other terms that denote the spousal relationship, as those terms are used throughout the law [in Illinois].
It is a clear goal of the law to recognize a state law equivalent of marriage for a same-sex couple. But the law also encompasses opposite-sex couples, and not unintentionally. The likely intent is to allow a marriage equivalent for opposite-sex couples for state law purposes, without the real or perceived federal law "penalties" associated with married status – such as potentially negative federal income tax or Social Security consequences. However, does the Civil Union Act accomplish that goal for an opposite-sex couple? And what might be some of the unexpected implications of the Civil Union Act for employee benefit plans regulated by the Employee Retirement Income Security Act (ERISA)? This is an interpretational issue for both federal governmental agencies and employers.
Several other states recognize opposite-sex non-marriage relationships (aside from common-law marriage). This article refers only to opposite-sex civil unions in Illinois and discusses some of the issues that may arise under federal income tax and Social Security laws, and with respect to benefit plans covering opposite-sex civil union partners, in Illinois.
The Defense of Marriage Act
Many rights and obligations under federal law, including rights and obligations under ERISA employee benefit plans, are based on marital or spousal status. The Defense of Marriage Act (DOMA), signed by President Clinton in 1996, provides that (emphasis added):
In determining the meaning of any Act of Congress, or 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 a husband or a wife.
A same-sex civil union in Illinois would not be considered a marriage under DOMA, and the civil union partners would not be spouses for purposes of any federal law or any ERISA-covered employee benefit plan. That is clear. However, what about an opposite-sex civil union in Illinois? A civil union in Illinois is a "legal union," and references to "spouse" and "husband" and "wife" in Illinois law encompass the civil union partners – one man and one woman. On its face, it would appear that a civil union between an opposite-sex couple in Illinois does (or at least may) constitute a marriage under DOMA, and thus is (or at least may be) recognized as a marriage under federal law. But does that mean that all federal law must recognize opposite-sex unmarried spouses in Illinois as married?
DOMA likely is not intended to define marriage for all federal law purposes but to serve to limit the reach of other definitions of marriage contained in federal law. The interpretational difference is as follows:
If DOMA defines marriage for all federal law purposes, then "marriage" is any legal union between one man and one woman as husband and wife – potentially including unmarried opposite-sex civil union partners in Illinois;
If DOMA merely limits the scope of other definitions, then wherever "marriage" is defined in federal law, that definition cannot be read to extend beyond a legal union between one man and one woman as husband and wife (but the definition can be narrower).
While the former reading allows for one consistent level of interpretation of marriage in all federal laws, it probably is not a correct reading. It is therefore necessary to analyze each relevant provision of federal law to determine who is considered to be "married," or which individuals are considered to be "spouses" (or something similar), for purposes of that particular law. However, it would seem that DOMA would not preclude opposite-sex civil union partners in Illinois from being treated as married for federal law purposes.
Federal Social Security Laws and Regulations
Social Security is a starting place. The belief may be that civil-union status for an opposite-sex couple in Illinois is not recognized as marriage for purposes of Social Security. However, that conclusion is not certain. Under the Social Security Act, an individual is a spouse if "… the courts of the State … would find that such [individuals] were validly married,"
… under the laws applied by such courts in determining the devolution of intestate personal property, have the same status with respect to the taking of such property as a wife, husband, widow, or widower. 42 U.S.C. § 416(h), Social Security Act § 216(h).
Social Security Administration regulations are similar. An individual is a spouse if "… the individual is validly married under State law" or "… would be able to inherit a wife's, husband's, widow's, or widower's share of the [other's] personal property if he or she were to die without leaving a will." 20 C.F.R. § 404.345.
Social Security thus will consider an unmarried individual to be the spouse of another if the individual would be treated as a wife or husband for purposes of inheriting property under applicable state law. Presumably, one of the many effects of the Civil Union Act would be to treat civil union partners as spouses for inheritance purposes in Illinois, thus suggesting that opposite-sex civil union partners should be considered spouses for purposes of Social Security. Of course, because of DOMA, same-sex civil union partners would not be similarly treated.
For a widow or widower who is receiving survivor benefits, those survivor benefits would seem to be in jeopardy under Social Security if a civil union is entered into prior to age 60, because the civil union partner would be treated as a spouse under the above standard. However, it is not clear whether the Social Security Administration would interpret the standards differently for opposite-sex civil unions in Illinois.
Federal Tax Laws and Regulations
Marital status is also vitally important for federal income tax purposes. Under federal income tax laws, two people who are married are treated quite differently than two who are unmarried with respect to tax filings, tax rates, and tax preferences. The federal income tax laws, regulations, and interpretations simply do not contemplate that a state may have multiple forms of legal unions between two opposite-sex persons. Most closely on point is the tax treatment of "common-law" marriage and the guidance issued in connection with that type of relationship. IRS Revenue Ruling 58-66, which remains the principal ruling on marriage for federal income tax purposes, generally is cited for the proposition that the "marital status of individuals as determined under state law is recognized in the administration of tax laws" (subject now, of course, to DOMA). Specifically, IRS Revenue Ruling 58-66 reads in part as follows (emphasis added):
"The marital status of individuals as determined under state law is recognized in the administration of the Federal income tax laws. Therefore, if applicable state law recognizes common-law marriages, the status of individuals living in such relationship that the state would treat them as husband and wife is, for Federal income tax purposes, that of husband and wife."
Focusing on the first emphasized sentence above, one could conclude that opposite-sex civil union partners in Illinois are not recognized as married for federal income tax purposes because they are not married under Illinois law. However, focusing instead on the second emphasized clause above might lead to a different conclusion, because Illinois would treat opposite-sex civil union partners as spouses and "husband" and "wife" for state law purposes. Any definition or use of the term "husband" or "wife" under Illinois law now includes opposite-sex civil union partners, and thus it would seem as if they were treated as husband and wife for purposes of federal income tax law. Again, because of DOMA, same-sex civil union partners would not be similarly treated.
This interpretation, if correct, would put an opposite-sex civil union on par with a common-law marriage for the purposes of federal income taxes. Neither a civil union nor a common-law marriage is a legal (or statutory) marriage, but the state treats the two parties in each type of relationship as husband and wife.
Employee Benefit Provisions
Whether opposite-sex civil union partners in Illinois must file as married persons for federal income tax purposes is not necessarily of concern to the employer of either party. However, employers may be concerned about whether opposite-sex civil union partners should be recognized as married (or as husband and wife) for various benefit plan purposes. For example, the following questions may arise:
- Is the relationship picked up in the definition of "spouse" used under the terms of the particular plan? For example, if a plan's definition of a "spouse" is any person treated as a spouse under applicable state law, provided the relationship is recognized under DOMA, then an opposite-sex civil union partner may already be covered under the terms of the plan.
- Should medical plan coverage provided to an opposite-sex civil union partner be treated as taxable to the employee (as would coverage provided to a same-sex civil union partner) or as tax free, which would seem correct if the civil union partner is recognized as a spouse under federal tax law?
- Is the opposite-sex civil union partner required to consent to the designation of another beneficiary under a 401(k) plan?
- Is a qualified preretirement survivor annuity required to be provided to an opposite-sex civil union partner under a defined benefit pension plan?
- Upon the dissolution of an opposite-sex civil union, is a retirement plan allowed to divide retirement benefits between the opposite-sex civil union partners pursuant to a qualified domestic relations order?
Guidance from the Internal Revenue Service would be helpful on these topics. Pending such guidance, an employer must make a judgment as to whether it will recognize an opposite-sex civil union in Illinois as a marriage for its benefit plans, and must adjust its processes and draft its plans accordingly. Taking a conservative approach might allow an employer to cover its bases regardless of the ultimate interpretation adopted for federal tax purposes. For example, a 401(k) plan could certainly require that a civil union partner give consent to the designation of another beneficiary, even if requiring such consent is not mandatory under the tax qualification rules.