In a 5-4 decision issued yesterday (U.S. v. Windsor), the United States Supreme Court ruled that Section 3 of the Defense of Marriage Act (DOMA), which defined marriage as a “union between one man and one woman,” is unconstitutional. The decision will have a wide-ranging impact as there are “over 1,000 federal laws in which marital or spousal status is addressed as a matter of federal law.”
For federal tax purposes, Section 3 of DOMA prevented same-sex married couples from claiming several benefits permitted to opposite-sexed married couples under the Internal Revenue Code. With Section 3 ruled unconstitutional, the door has been opened for same-sex married couples to claim those advantages under the Internal Revenue Code. In fact, Windsor is a case about whether a same-sex surviving spouse is entitled to a refund of estate taxes that were paid because under Section 3 of DOMA the surviving spouse could not claim the marital deduction for federal estate tax purposes.
The question is how far has the door been opened to claim the tax benefits (or in some instances the tax penalties) of marriage? Without a federal definition of marriage or spouse, the assumption is that the terms will now be defined by state law. The widow in Windsor was married in Canada (which recognized same-sex marriages at the time of the marriage) and living with her spouse in New York (which also recognizes same-sex marriages) at the time her spouse died. However, not all states recognize same-sex marriages. And the Windsor decision leaves unanswered the question of what would have happened if the couple had lived in a state that did not recognize same-sex marriages.
The majority opinion in Windsor expressly limited its holding to couples in states in which their marriage is recognized as lawful.
The federal statute [Section 3 of DOMA] is invalid, for no legitimate purpose overcomes the purpose and effect to disparage and to injure those whom the State, by its marriage laws, sought to protect in personhood and dignity. By seeking to displace this protection and treating those persons as living in marriages less respected than others, the federal statute is in violation of the Fifth Amendment. This opinion and its holding are confined to those lawful marriages. (Emphasis added.)
In other words, the rule in Windsor only applies to same-sex marriages that are recognized as lawful under state law.
At the present time, there is no uniformity in the treatment of same-sex marriages among states. Normally, a state is required to recognize the validity of marriage lawfully performed in another state. However, that requirement is currently overridden by Section 2 of DOMA which provides that states are not required to recognize the validity of the law of another state recognizing the validity of same-sex marriages. The validity of Section 2 of DOMA was not before the Court in Windsor.
What does this mean for same-sex married couples?
You should consult with your tax advisor to determine whether any adjustments need to be made to your income tax withholding or income tax planning as a result of the federal recognition of your marriage. At a minimum, you will now need to consider whether you should file returns as married filing jointly or married filing separately.
You should also consult with your estate planning attorney as your Will and/or trust may need to be updated to include provisions permitting the use of the marital deduction to delay or avoid potential estate taxes.
For individuals whose spouse died within the last couple of years, you will want to consult with an attorney to determine whether any refunds or estate taxes are in order or whether you are entitled to your spouse’s social security benefits.
Note: because it is unclear at this time how same-sex married couples living in states that do not recognize same-sex marriages will be treated, you may not be able to take full advantage of the Windsor decision. However, you should meet with your tax advisors to discuss your situation and perhaps update your planning to include provisions if you are (or become) able to take advantage of the opportunity the Windsor case presents.