On March 27th of this year the Supreme Court held oral arguments in U.S. v. Windsor (“Windsor“). Windsor involves federal laws and benefits, and their applicability to same-sex marriages. You can read my previous thoughts on the Windsor case here. Yesterday, the Supreme Court, struck down a law forbidding federal benefits as it applies to same-sex marriages
In 1996, the U.S. enacted the Defense of Marriage Act, or DOMA, which stated that federal benefits and inter-state recognition division of marriage would only apply to opposite-sex marriages. Section 3 of DOMA codifies the non-recognition of same-sex marriages for all federal purposes, including insurance benefits for government employees, Social Security survivors’ benefits, immigration, and the filing of joint tax returns.
In Windsor, the Supreme Court was confronted over whether a same-sex married couple can be granted the unlimited marital deduction that opposite-sex married couples are given. The unlimited marital deduction allows a spouse to give unlimited amount of assets to his or her spouse with reduced or no tax imposed upon the transfer. In a postmortem situation, this can greatly reduce the federal estate taxes an estate will pay when assets are transferred to the surviving spouse. Previously, under DOMA, only opposite-sex married couples could take advantage of this deduction to make these types of transfers to reduce estate taxes.
Edie Windsor and Thea Spyer, her partner, were married in 2007. When Spyer passed away, her estate plan chose to leave her entire estate to Windsor. Until yesterday, if Windsor had been a man, she would not have had to pay any estate tax because of the marital deduction. Edie Windsor argued she should not have had to pay $363,000 in federal estate taxes under equal protection reasons.
In a 5-4 decision, the Supreme Court agreed.
Justice Anthony Kennedy wrote the majority opinion and stated “[t]he federal statute is invalid, for no legitimate purpose overcomes the purpose and effect to disparage and to injure those whom the State, by its marriage laws, sought to protect in personhood and dignity…by seeking to displace this protection and treating those persons as living in marriages less respected than others, the federal statute is in violation of the Fifth Amendment.”
The court’s majority ruled that the power of the individual state in defining marriage “is of central relevance” and the decision to grant same-sex couples the right to marry is “of immense import.” The state, the court ruled, “used its historic and essential authority to define the marital relation in this way, its role and its power in making the decision enhanced the recognition, dignity, and protection of the class in their own community.” The court held that DOMA “because of its reach and extent, departs from this history and tradition of reliance on state law to define marriage.”
For now, it appears the decision only appears to apply to those states that recognize some form of same-sex marriage. The decision will have a more limited impact in the thirty-one states that do not recognize same-sex marriage. Thus, it would appear from the Windsor decision that if you are same-sex couple in one of the states that doesn’t recognize same-sex marriage you will still be liable for the federal estate tax if your partner’s estate exceeds the federal exemption level. The reasoning is that you are not married and, thus, not afforded the unlimited marital deduction.
The impact of the Windsor decision on federal law and benefits will be wide-ranging. But, it will be hard not to imagine new cases arising to challenge the denial of same-sex couples to get married in these non-recognition states. For instance, a same-sex couple, with assets that exceeds the federal estate tax exemption levels lives and gets married in Maryland. The couple then moves to Virginia (which doesn’t recognize same-sex marriage) where one of them dies. Under Windsor decisions, it is likely the dying spouse’s estate would have a federal estate tax liability.
I would say more legal cases will be coming.