The Demise of Doma: Ten Reasons Why It is Good for Massachusetts Residents
Wednesday, July 03, 2013
The Supreme Court has finally ruled that federal Defense of Marriage Act (DOMA) is unconstitutional. This means that the national legal definition of a marriage is no longer limited to the union of one man and one woman. Same sex couples that marry in one of the 13 jurisdictions (12 states plus DC) and live in one of them, will now assume all benefits (believed to be 1000 or more) of federally recognized marital status.
For those who travel to one of those states to become lawfully married, and then either return to, or move to, one of the remaining 38 states that do not yet authorize same sex marriage, the full implications are not yet clear. News reports suggest that some federal departments (military, V.A.) utilize the place of marriage ceremony for marriage recognition to determine eligibility for benefits, while others use place of residence. In the latter case, people who live in the 35 states that overtly ban gay marriage, significant challenges surely remain, at least for now.
But, for Massachusetts’ residents, DOMA’s death is immediate unmitigated good news. Here are ten reasons:
- Filing joint United States income tax returns. Previously, same sex spouses could jointly file state returns, but not federal, where the real filing status savings originate.
- No gift taxes. Federal law prohibits transfers of property beyond certain statutory annual and lifetime limits, except between spouses, including divorcing ones. The tax rates are onerous and particularly damaging at a time of divorce when property needs to be divided. Same sex spouses may now benefit from the same exceptions.
- Avoiding federal taxes on health insurance. Spouses are not taxed when providing employer provided health insurance for each other. As newly recognized spouses, gays and lesbians will not longer be penalized on health care in this way.
- Tax forgiveness on sale of a marital home. Spouses may shelter up to $500,000.00 of capital gains on a joint federal income tax return every 2 years, but individuals can only shelter $250,000.00.
- Tax deferred property divisions. Also in the case of divorce, federal tax laws exempt transfers between spouses of appreciated property from capital gains taxation, allowing wealth to be divided on a tax-deferred basis. The property recipient takes a “carry over basis” in assets received and only pays tax if and when the property is actually sold to a third party. Gays and lesbians may now do the same.
- Tax deferred pension splits. In the event of divorce, same sex couples could not previously transfer interests in federally qualified pension plans to each other. If they wanted to divide value, the beneficiary had to liquidate the pension (where possible), pay taxes and penalties, and then transfer cash. No longer.
- Taxable/Deductible Alimony. Divorced spouses may leverage family support dollars by having a high tax-rate payer pay support in the form of alimony to a lower-tax rate ex-spouse. This shifts the federal tax payment obligation from the higher earner to the lower, resulting is less tax paid, and more disposable dollars for the re-structured family. This powerful tool is now fully available.
- Burial in V.A. cemeteries located in MA. Since V.A. cemeteries here are federal jurisdiction, veteran and non-military same sex spouses could not be interred together, but now can do so if they choose.
- Tax-free inheritance. All but the wealthiest in America inherit from a deceased spouse without the imposition of estate taxes, now including gay and lesbian widows and widowers.
- Survivor’s benefits. Previously precluded, gay and lesbian widows and widowers will now receive enhanced social security, military and federal government pension rights from their deceased spouses.
There are more. As human beings and as Massachusetts divorce mediators and arbitrators, we celebrate both the inherent fairness of this event, and its economic benefits. More residents now have a greater chance for the pursuit of happiness here, and that is all good.