By Jamie Rubenstein
For all those accountants, attorneys and finance planners dealing with the fallout from the U.S. Supreme Court strikedown of the Defense of Marriage Act/Prop 8, euphoria has quickly morphed into reality.
“There’s no doubt the decision was far reaching but now the confusion has set in and same sex couples have to be patient,” advised Jane Bernardini, a New York CPA and member of Anchin Block &: Anchin LLP in urging caution to the LGBT community on gaining any quick tax fix.
There is certainly no need for same sex couples “to rush into marriage” because of the rulings, and yet people should want to consider where they want to live in states that do recognize same sex marriage, said Bernardini, a member of the Estate Planning Committee of the New York State Society of Certified Public Accountants.
The key to what course to take, suggested Bernardini, rests on how quickly the Obama administration and federal agencies start applying the DOMA ruling to existing policy in giving equal same-sex treatment, she said.
“I think you’re already seeing some shopping around by same sex couples looking for recognition states,” maintained Joseph G. Milizio, a Lake Success, NY attorney suggesting that “if you’re a couple married in New York or one of those 12 recognition states, you should have no problems on joint taxes or estate planning but the issue gets complicated comes when you start moving to a different state that does not recognize.”
In essence, retirement plans and company employee transfer policies will now come into play for LGBT couples as they choose favored sates, suggests Milizio.
Many other attorneys with LGBT practices across the Northeast agree, citing particularly difficult barriers associated with divorce.
“The most pressing request or question I’ve received so far is, ‘Can we get divorced yet?’ and for those in Virginia, the answer is ‘no,’” said Kyung (Kathryn) Dickerson, an attorney with SmolenPlevy.
Barring anyone wanting to become a test case in the divorce area, Dickerson recommends that couples go to a state that recognizes gay marriage, observe the residency requirements and get divorced there.
State recognition has myriad complications and that falls into issues such as inheritance rights and who has the decision making power when one of the parties is at beside in a hospital. “Who gets designated?” she asks.
New York attorney Carolyn Statenberg agrees that the DOMA ruling is huge “and is great” but she stresses “this is not a retroactive decision and you can’t go back and refile,” with issues becoming very sticky on divorce.
“If you should move to Texas, you can’t get a divorce there because the state does not recognize same sex status,” said Statenberg. Apart from that, states have different laws as to division of assets, with most states going back three to five years in computations.
And there are adoption concerns “which is why I recommend parents now pursue full adoption,” so there are no hangups when it comes to DOMA/Prop 8 overhangs.
As to divorce, one fact of life, she said, is that same sex divorces “cost twice as much as heterosexual couples because so much is unclear in state law.” Even on case statues, issues get complicated and the research gets time-consuming and expensive, she advises.
As for how soon, federal agencies will start to move in clarifying DOMA. David Spaulding, head of Domestic Partners Network, a New York advisory, noted that during the July 4 holiday week, the U.S. Office of Personnel Management issued some administrative memos to various federal benefits administrators and insurance carriers saying that “couples who are not legally married will remain ineligible for most federal benefits programs.”
“The question I am anticipating from clients will be ‘should we amend our prior federal tax filings?’ and this question will have to wait for guidance from the IRS,” he said. “I would expect that the IRS would allow those who were married to file amended returns from the year they were legally married including years that would have expired under statute of limitations if a protective claim for refund was filed for those years (2009 & before).”
The question will be, he continued, “is whether the IRS will require married couples to go back and file as MFJ (or MFS) even if doing so would cause them to recognize an increased income tax. If they do so, then I would expect them to waive any penalty or interest since the original filings were prepared in accordance with the law at the time.”
Nonetheless, the significant impact of the DOMA ruling will be in the gift and estate planning area, he said. The firm will be advising same-sex married couples of what they can now do and to what extent the marriage benefits will now reduce or eliminate the potential gift and estate taxes “for which we had prepared various legal work-around(s).”
The firm, he went on, will be looking at and likely advising re-writing of wills, planned gifting, as well as reviewing existing trusts to see what adverse effects DOMA might have.
Financial planner Stuart Armstrong of the Centinel Group of Needham Heights, Mass., agreed that much has to be ironed out by federal agencies including the IRS in such areas as military benefits and social security to provide more clarity particularly when it comes to the so-called “state of residency or state of celebration.”
“For some couples, there will be an incentive to get married in a recognition state but couples seeking divorce have to decide where it can be done smoothly,” he said. For instance, alimony “may no longer be deductible and that could create complexities,” said Armstrong, who is also a director of the Pride Planners group slated to discuss DOMA/Prop8 during the annual national Financial Planning Association conclave held in October in Orlando.
Marshal Grant, a Portsmouth, N.H. trust and estates attorney with Pierce Atwood of Portland, ME said in households of two high earners careful attention has to be paid as to whether to file jointly or separately since there “could be discrepancies” with total income and tax liability misleading. Depending on circumstances, it may be more expedient to file separately, he suggested.
Apart from DOMA’s direct impact, one Atlanta finance advisor, Cristina Briboneria, vice president of oXYGen Financial Inc. of Alpharetta, GA, suggests the wedding business in non-recognition states is in for a surprise.
Same sex partners will now want to marry in recognition states and so they will generate a boomlet in the wedding business, she forecast.
In non-recognition states, “that means the loss of marriage license fees, hotel fees, wedding planners, party and catering, floral and anything that has to do with throwing a wedding party.”
“I read that in Canada the same sex wedding industry is worth upwards of $4550 million and that in the U.S. alone the wedding industry is $46 million. Now tell me that states don’t want a cut of that cash,” Briboneria concluded.