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Divorce Mediation Blog

Less Than Full Joy: Health Benefits for Same Sex Couples after DOMA

Monday, August 12, 2013

By Rich Streitfeld, CPA

Wow! I am still celebrating the demise of the federal “Defense of Marriage Act”. This wonderful news puts married same-sex couples on the same playing field as heterosexual couples when it comes to federal benefits, at least if you are ”in the right state”*. For most situations, this is great – you can file your taxes jointly, your partner reaps Social Security survivor benefits upon your death, and you can automatically sponsor your partner for a green card.

Yet there are hidden complexities and, yes, even disadvantages, to being married when it comes to some tax and financial matters. Maybe not enough to keep you from tying (or untying!) the knot, but these are worth your being aware of. Take health insurance. If you are “in the right state”* then here is:

The Great news: If you have been fortunate enough to receive employer-paid health insurance benefits for your spouse, you will no longer pay income taxes on this benefit (didn’t you hate that?). And if you were paying for your partner as an employee, you may now use any “tax advantaged” programs the employer offers.

The Bad News: Under DOMA, the federal government looked at each person in a same-sex marriage autonomously. Now the two of you comprise a household and an individual who used to qualify for Medicaid on an individual basis might no longer, if the total “household income” is too high. This can be especially significant if your partner has dependents receiving Medicaid benefits. In a similar vein, one or both of you may have qualified for the “premium tax credits” that will be available thru “Obamacare” starting October 1, 2013. If married, you may both lose out should your combined income exceed the household income threshold, which is related to federal poverty guidelines. Then Again:

The Good News: Depending on their respective incomes, a couple might qualify for the tax credits as a couple, thus covering both of them, whereas only the lower wage earner may have qualified if they were single. But:

The Bad News: Even if you meet the income criteria for the tax credits, either or both of you may be deemed ineligible if your employer offers health insurance on an individual or family basis (even if no contribution is made!)

Such is the complicated state of health care for all families in America in 2013! The DOMA ruling itself is fresh and federal and state agencies will be clarifying procedures over the coming months. Stay tuned.

* It is expected that the IRS will treat you as married based on your residence -- if the state you live in recognizes same-sex marriage then you are considered married for federal purposes. However, experts have pointed out that the IRS recognizes common-law marriage for federal taxes no matter where a couple lives as long as their marriage was valid where entered, and INS has also used these criteria for immigration benefits (“place of celebration”—love that term). Again, stay tuned!

NOTE: Every situation is different and federal and state tax laws are subject to change. This article is presented for informational purposes only and is not intended to substitute for obtaining tax or financial advice from a tax or other business professional.

Rich Streitfeld is a CPA with Aaronson Lavoie Streitfeld Diaz & Co. in Cranston, R.I.
He can be reached at rich@alscpa.com or 401-223-0205.
© 2013 Rich Streitfeld

 

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.

 

Marriage Equality: Politics and Supreme Court Briefs

Wednesday, March 06, 2013

As Massachusetts lawyers, we have prided ourselves by association with the SJC’s Goodridge v. Department of Public Health decision. For the people directly involved in the battles for gay and lesbian rights, progress from then until now has probably seemed to be painfully slow; but to those of us not on the front lines, perhaps bearing in mind the historical path of previous civil rights aspirants like African Americans and women, it can seem breathtakingly fast -- and that is good.

We have previously blogged about the federal Defense of Marriage Act (DOMA), and the utter indefensibility of congressional authorization to pay for its defense before the United States Supreme Court. More recently, and more happily, we discussed the 2012 elections, in which three states broke new ground with statewide electoral victories for marriage equality. The whiff of inevitability that last November was advanced further last week, when the Department of Justice filed briefs not only in support of DOMA’s demise, but also in support of striking California’s Proposition 8 ban of same sex marriage.

How remarkable is that? A presidential administration supporting constitutional attack on legislation signed by the last president from his own party; then filing a brief on what is ostensibly a purely state matter where the government is not even a party; all following closely on the heels of the abolition of “don’t ask, don’t tell.” It may seem less surprising after the President’s second inaugural address and the views that he espoused during the 2012 election (doesn’t it seem like eons since Vice-President Biden outed the President, intentionally or otherwise?), but isn’t this the same President who comforted some by declaring his personal view that marriage is between a man and a woman, just 4 years before?

Regardless of what the Supreme Court rules this year, once civil rights movements take hold in this country they tend to go generally in one direction. With marriage equality beginning to take hold with the electorate in November, more so in the popular opinion polls since, and with the cause now being re-cast by a growing minority of conservatives thinkers as their own, the inevitable end looms closer.

From Justice Marshall to Ted Olson to President Obama, that is something for which we can all be proud and grateful.

 

Same Sex Marriage after Obama-Romney

Wednesday, December 19, 2012

The 2012 elections are behind us, thank goodness.

We will remember them for the ebb and flow of the presidential confrontation between President Obama and Mitt Romney, and its attendant drama, both media-manufactured and real. But, in the long run, we wonder if the exercise in direct democracy that played out in the decisions of four states on the matter of marriage equality will outweigh the important consequences of the this election cycle at the “top of the ticket”.

After the Massachusetts landmark 2003 Supreme Judicial Court decision to permit same sex marriage, the acts of five other supreme courts or legislatures followed suit over time. Sometimes these actions were controversial. Interests opposed to the SJC’s action attempted to block the decision by legislative action here, before its May 2004 effective date. In Iowa, the voters purged its Supreme Court justices blamed for the legalization decision. When legislatures acted in New York, Vermont and Washington, D.C., the opposition reaction was more muted. After all, the action was legislative and not the result of “judicial activism”.

November 2012 was different. It was direct democracy in action. In these states, the populations led the leaders. In Maine, Washington State and Maryland, the voters seized the initiative and extended marriage affirmatively to gay and lesbian couples by referendum. Remarkable actions all, but standing alone, they might still be marginalized as coastal elitism. But Minnesota stands alone. For the first time, a state in the middle of the country, by statewide vote, declined to ban gay marriage, after years of other states doing exactly that.

“Suddenly”, twenty per cent of the states embrace marriage equity. Was all of this simply a product of blue states in a presidential turnout year being encouraged by Vice-President Biden’s “accidental” outing of the administration’s support of marriage equality – followed by the President’s public affirmance? Or was a cresting wave hitting the social fabric of the country? The answer may be “both of the above”, but if history is a guide, November 2012 will be remembered as the date that hastened the end of official discrimination against gays and lesbians.

With a plateful of economic and foreign policy crises, and maybe even some long overdue attention to our ongoing national gun/mental health negligence, it cannot be in the forefront, but can the end of federal discrimination, festering in Defense of Marriage Act, survive much longer? With the Supreme Court accepting one Defense of Marriage Act (DOMA) challenge, and the marriage equity case from California, for review this term, we cannot know if the trend will be encouraged or slowed. But, in the end, the painful and gradual, but continuing trend of civic emancipation continues: and November 2012 will take a place of significance in that history.

 

Spousal Medical Insurance After Divorce: A Priority

Wednesday, August 08, 2012

Many, many years after Massachusetts’ (pre-Romney) groundbreaking effort to provide medical insurance for non-employee former spouses beyond the rights provided by the federal COBRA laws, we remain the most advanced state in this regard; but not without our own continuing uncertainties. In the most general terms, COBRA allows a divorced heterosexual person (don’t forget the Defense of Marriage Act: it is, regrettably, still national law) to buy continuing health coverage through the other spouse’s employer plan for a period of up to three years post-divorce only, at a cost of 102% of the cost of an individual plan member. Massachusetts, by contrast, offers an indefinite period of coverage at no cost beyond that required for the employee spouse to cover himself and children under a family plan without a fixed limitation of years; and when child coverage is no longer necessary, the non-employee may still have coverage on the family plan if the employee has not remarried, without a time limit. If the employee spouse marries another person, the former spouse may still be covered at the cost of an individual employee, by use of a rider. The non-employee spouse loses these rights whenever she remarries.

Yet, when the law was enacted, it had a loophole that has not, to this day, been closed:  self-insurance.  The law is an insurance statute and not a generic healthcare provision, so employers who choose not to buy an insurance product for their employees, but instead pay defined medical costs themselves, are exempt for the law, even if the hire an insurance company to provide administrative services to help run their internal plan.  It is likely that self-insurance employers become “insured” for the law’s purposes if they buy “stop loss” insurance (that is, if costs go above a certain amount, an insurance company steps in to cover the excess – think catastrophic coverage for the employer), but this information difficult to ascertain, uncertain and costly for the consumer to enforce.

There also remains a lack of clarity about what is a Massachusetts employer for purposes of the law. Many companies who do business here, but are based elsewhere, continue to contend that their obligations are covered by the (lack of) law to trump or augment COBRA in their home state. There is also uncertainty about what happens to the non-employee former spouse’s coverage if the employee changes jobs or moves out of state. To make matters more difficult, many company human resource departments appear, genuinely or not, to be hearing about our laws for the first time when counsel or client inquires.

For all of these reasons, it is a priority in any divorce action for the parties to gain and share the greatest level information possible about the employee spouse’s coverage, at the earliest time available in the divorce process. This information is all spelled out somewhere in paper or digital format; and if it is left to be treated as a last minute detail of divorce negotiation, or as one that is informed by casual representations only, disastrous and unanticipated consequences can occur. Sometimes, significant time must be invested in communicating with the employer about its state law obligations before they will be acknowledged and honored. In some cases, litigation, or the suggestion of same, may even be necessary.

As always, knowing is essential; and time is an ally.

 

Same Sex Marriage Meets Civil Union Dissolution

Wednesday, August 01, 2012

In last week’s Massachusetts Supreme Judicial Court’s (SJC) case of Elia-Warnken v. Elia, the court ruled that a civil union from another state (Vermont in the facts of this particular case) is the legal equivalent of marriage when it interacts with our laws of marriage and divorce. The question arose: when a person became part of a civil union in a state that had not yet recognized the right of same sex marriage, and had not obtained a legal dissolution of that union before marrying here, does this constitute polygamy, making the Massachusetts marriage void. The answer was a clear “yes”.

In doing this, the SJC maintained a consistent view that it will not tolerate a continuation of the national practice (that is, in most states individually who do not recognize same sex marriage, and in federal law, where the Defense of Marriage Act (DOMA) precludes it for federal purposes, and exempts the states from having to acknowledge it) of domestic discrimination against gays and lesbians. The court reasoned that to treat civil unions as anything less than a marriage for our state’s purposes would do exactly that.

So, for a civil union partner to marry in Massachusetts he or she must dissolve one legal relationship before entering into another, whether the prior one be one that is called “marriage”, or a civil union. Strike a blow for marriage equity and against one fear mongered by those who continue to champion DOMA: that somehow same sex marriage will lead a creeping acceptance of polygamous marriage.

 

The Defense of Marriage Act: Defending the Indefensible

Thursday, July 05, 2012

Since 2004, gays and lesbians have been legally free to marry in Massachusetts. That is now the law in six (6) states and the District of Columbia. Yet, by congressional action, signed into law by President Clinton, legally married couples here are not legally married for any federal purpose, nor is their status respected in most other states.

The Defense of Marriage Act (DOMA) (declaring a marriage as only between one man and one woman for all federal law purposes and relieving other states of any obligation to recognize a same sex marriage permissibly created in another state) denies same sex spouses more than a thousand benefits, including the right to file joint tax returns, to have tax privileged spousal medical benefits and access to many social security and veterans survivors benefits. In divorce, gays and lesbians may not transfer property without taxation at the time of divorce, cannot claim alimony tax deductions and are prohibited from transferring pension assets without triggering tax consequences, which can be sometimes catastrophic; rights that all hetero-sexual married couples take for granted.

A group of plaintiffs sued in the United States District Court for the District of Massachusetts in the case of Gill v. O.P.M. and 2 companion cases, seeking to have DOMA declared unconstitutional. After defending DOMA and losing in the trial court, the Obama Administration declined to defend it again in the appeal of Judge Joseph Tauro’s judgment wherein he declared DOMA to be unconstitutional. The Department of Justice declared the statute indefensible. The United States Court of Appeals for the First Circuit, agreed with Judge Tauro and upheld his judgment.

The next stop for this controversy is the United States Supreme Court, where others will stand in as surrogates for the federal government in seeking to reverse the First Circuit’s decision, doing what the current government refuses to do: defend the indefensible.

 



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