Update: On Friday, December 7, 2012, the Supreme Court announced that it would hear arguments in Windsor v. United States and Hollingsworth v. Perry. These cases, addressing the Defense of Marriage Act (DOMA) and California’s Proposition 8 will mark the first time the Supreme Court has addressed the question of same-sex marriage.
Update: On October 18, 2012, the Second Circuit Court of Appeals issued an opinion striking down the so-called “Defense of Marriage Act” (“DOMA”) in the ACLU and NYCLU’s Windsor v. United States case. The Court decided that when government discriminates against lesbians and gay men, the discrimination should be presumed to be unconstitutional. The Second Circuit was not the first appeals court to strike down DOMA, however. The First Circuit Court of Appeals found DOMA unconstitutional in May of 2012. But, the significant difference between the two legal opinions may mark the beginning of an important legal shift in the way DOMA cases are decided. The First Circuit evaluated DOMA under what is known as “rational basis review.” This test requires that the government action be “rationally related” to a “legitimate” government interest. In spite of this, the Second Circuit became the first federal appeals court to decide that a higher standard of review, intermediate scrutiny, applies to decisions of discrimination based on sexual orientation. In order to overcome the intermediate scrutiny test, it must be shown that the law or policy being challenged furthers an important government interest in a way that is substantially related to that interest. This legal standard, if ultimately accepted by the Supreme Court, would dramatically raise the burden on government to defend the constitutionality of laws that discriminate on the basis of sexual orientation, like same-sex marriage, as seen in Windsor v. United States.
The year was 1963, the restaurant Portofino – an eclectic restaurant in Greenwich Village, a part of New York City known as one of the centers of the gay and lesbian liberal movement. It was this night that Edie Windsor met Thea Spyer. “We immediately just fit,” said Thea, in the award-winning 2009 documentary film, Edie and Thea: A Very Long Engagement by Susan Muska and Greta Olafsdotir. After sharing their lives together as a couple in New York City for 44 years, the two women wed in Canada, where same sex marriage was legal. Two years later, Thea died of complications of multiple sclerosis. At that time the Defense of Marriage Act (“DOMA”), a 1996 federal statute, took effect, transforming Edie’s story from a personal tragedy to a public trial.
Section 3 of DOMA recognizes marriage as “only a legal union between one man and one woman.” “Spouse” means only a person of the opposite sex who is a husband or a wife. Ordinarily, whether a couple is married for federal purposes depends solely on whether they are considered married in their state. New York recognizes same sex marriages, but because of DOMA, same sex couples like Edie and Thea are not treated the same as other married couples.
Married couples, according to Section 2056 of the Internal Revenue Code, can transfer an unlimited amount of money or property from spouse to spouse upon death without triggering estate taxes (the “marital deduction”). However, due to DOMA, same sex couples have no such rights, even if their marriage is recognized by their home state. Because Section 3 of DOMA prohibited the federal government from recognizing Edie and Thea’s marriage, Edie was not able to claim the marital deduction and was assessed a tax of over $363,000 on her inheritance from Thea.
However, on June 6, 2012, in an action titled Edith Schlain Windsor v. The United States of America, 2012 WL 2019716 (2012), Edie, with representation by the American Civil Liberties Union (“ACLU”), won the challenge against the constitutionality of DOMA and was awarded a refund of the estate tax she was forced to pay. The U.S. District Court in Manhattan became the fifth federal court to rule that DOMA Section 3 is unconstitutional. In her opinion, Judge Barbara S. Jones wrote:
DOMA does not affect the state laws that govern marriage. Precisely because the decision of whether same-sex couples can marry is left to the states. DOMA does not strictly speaking, “preserve” the institution of marriage as one between a man and a woman. The statute creates a federal definition of marriage. But that definition does not give content to the fundamental right to marry – and it is the substance of that right, not its facial definition, that actually shapes the institution of marriage.
Even though the Department of Justice has filed a notice of appeal of the District Court’s decision in Windsor, the dominoes continue to fall on DOMA. Windsor has been referred to as one of the primary cases to affect the Obama administration’s decision to no longer defend the constitutionality of DOMA.
Attorney General Eric H. Holder, Jr., released a memorandum in 2011 stating that the Obama administration had determined that classifications based on sexual orientation should be subject to heightened scrutiny. Thus, it is important that same sex couples seek expert estate planning advice as the fate of marriage equality hangs in the balance. While DOMA remains in effect, same sex couples do not receive many of the rights and benefits that arise from the institution of marriage. Careful estate and gift planning can help mitigate any risk that the goals intended by same sex couples are not challenged by the IRS.