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DOMA decision to have big impact

By Claes Bell, CFA · Bankrate.com
Wednesday, June 26, 2013
Posted: 12 pm ET

The U.S. Supreme Court issued two rulings Wednesday that likely will have a major impact on tens of thousands of American households.

By a vote of 5-4, the Supreme Court voted to strike down Section 3 of the Defense of Marriage Act, which had previously prevented the federal government from recognizing same-sex marriages. In the court's opinion for United States v. Windsor, Justice Anthony Kennedy cited the Fifth Amendment's equal protection clause as the reason for the ruling:

When New York adopted a law to permit same-sex marriage, it sought to eliminate inequality; but DOMA frustrates that objective through a system-wide enactment with no identified connection to any particular area of federal law. ...

DOMA writes inequality into the entire United States Code. The particular case at hand concerns the estate tax, but DOMA is more than a simple determination of what should or should not be allowed as an estate tax refund. Among the over 1,000 statutes and numerous federal regulations that DOMA controls are laws pertaining to Social Security, housing, taxes, criminal sanctions, copyright, and veterans' benefits.

In a second same-sex marriage decision, the Supreme Court dismissed Hollingsworth vs. Perry, thus ending California's ban on same-sex marriage known as Proposition 8.

While the DOMA decision in the first case is a landmark for gay rights, the thinking behind it is simple, says Erwin Chemerinsky, dean and professor of law at the University of California, Irvine, School of Law.

"The Constitution says that no person can be denied the equal protection of the laws. To say that same-sex couples can't marry while opposite-sex couples can marry, they say denies equal protection," Chemerinsky says.

The ruling does not establish a right to same-sex marriage nationwide, but it does mean that the federal government will recognize marriages conducted in states where it is legal, says Katharine Baker, a professor of law at the Illinois Institute of Technology's Chicago-Kent College of Law.

"There's never been a gay or lesbian couple in this country that has been treated to full equality for marital purposes because the federal government had already enacted DOMA before Massachusetts ever granted marriage licenses to same-sex couples," says Baker. "It's a huge symbolic victory."

Financial implications of DOMA's demise

Lisa B. Siegel, senior wealth planner at Wells Fargo, says the DOMA decision also has broad financial implications for same-sex married couples, who will now be able to share federal benefits and manage tax liability in the same way as straight couples historically have.

"It's going to affect so many different things, but from a financial perspective, one of the most important areas is taxes," Siegel says.

Same-sex couples will likely save big on fees to tax preparers thanks to vastly simpler federal income tax returns, but whether same-sex couples benefit from filing jointly depends on their individual tax situation. But when it comes to estate taxes and gift taxes, the ruling likely means a lower tax burden, especially for wealthy couples, Siegel says.

Partner health insurance benefits, which were taxed under DOMA, will also no longer be considered taxable income, lightening the tax burden of many couples, Siegel says.

Funding retirement also will get substantially easier for same-sex couples, especially in cases where one partner dies. Thanks to the decision, "the surviving spouse should be eligible to receive survivorship benefits under Social Security. Certainly someone who's working on a couple's financial planning would factor that in obviously if that surviving spouse would be eligible to get that," Siegel says.

But it may take time to see the full effects of the Supreme Court decision play out for same-sex couples because of all the legal complexities involved, Siegel says.

"If you go through the list of federal benefits where your benefit is tied to whether or not you're deemed to be married under federal law, there are over 1,100 benefits. Some of them are obviously more important and some are more mundane or administrative," Siegel says. "The question is, how administratively do you implement this?"

Another broad class of people who will benefit financially from the ruling is the federal workforce, Baker says.

"There's just a whole range of federal employees, and they all now can have their spouse get health insurance on the federal government's health insurance plan," Baker says.

2nd case leaves legal 'patchwork'

The Supreme Court's decision on the other same-sex marriage case before the Supreme Court, Hollingsworth v. Perry, wasn't quite as sweeping a victory for same-sex couples.

The Supreme Court opted to dismiss the case, ending California's ban on same-sex marriage known as Proposition 8 by letting a lower-court decision stand. But it fell short of striking down other state-level gay marriage bans as same-sex marriage advocates had hoped.

"The District Court in California ordered the California authorities to start issuing marriage licenses," Baker says. "That order was stayed pending appeal, but the appeal has been dismissed, so the California authorities should now be bound to start granting same-sex marriage licenses."

The University of California's Chemerinsky says the decision to dismiss the case was based on a legal principal called "standing," which is a requirement that both the defendant and the plaintiff in a case have something at stake in the outcome.

"In the Prop 8 case, the governor and the attorney general refused to appeal, but the supporters of Prop 8 intervened to appeal," Chemerinsky says.

That ultimately doomed the defendants' case. The Supreme Court decided that Proposition 8 supporters Dennis Hollingsworth and his advocacy group, ProtectMarriage.com, didn't have standing to appeal the California Supreme Court's ruling in federal court.

While welcome news to same-sex couples in California, Baker says the decision won't affect state-level prohibitions on same-sex marriage in 35 other states.

"The only gay and lesbian couples affected by today's rulings are married gay and lesbian couples (in states that allow same-sex marriage) and gay couples in California who want to get married," Baker says.

Wells Fargo's Siegel says the court's dismissal ultimately means that same-sex couples will continue to face financial and legal challenges as a result, especially when they move from a state that allows marriage to one that doesn't or travel to other states to get married.

"They still have left us with a mess, really," Siegel says. "For them to fix the problem, they have to get rid of all this patchwork."

Fortunately, the sweeping opinion in the DOMA case will likely provide legal ammunition for those looking to challenge state laws.

"There still will need to be litigation as to state laws which prohibit same sex marriage. But, the reasoning in Justice Kennedy's opinion -- that the denial of recognition of same-sex marriage reflects animus and serves no legitimate purpose -- provides a basis for challenging state laws denying marriage equality," Chemerinsky says.

"The case thus will lead to much more litigation as to state laws, but I think it is clear where the court ultimately will go in holding that laws denying marriage equality deny equal protection," he says. "But, it didn't happen today."

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2 Comments
alfred
November 30, 2013 at 12:10 am

At last reason prevails!