Drafting Considerations for Same-Sex Couples

By Peter F. Zupcofska

Counseling clients contemplating a same-sex marriage is not business as usual for the family law attorney. The key factor causing such complexity is the federally enacted Defense of Marriage Act (DOMA), which provides each state with the ability to determine whether to allow same-sex marriages or unions within its borders and the right to determine whether it will recognize same-sex marriages performed legally in other states. Likewise, DOMA mandates that the federal government shall not recognize same-sex marriages, and, therefore, any and all rights, duties, and obligations created under the aegis of the federal regulatory and statutory scheme that apply to married heterosexual couples do not apply to married same-sex couples.

The result is a whole host of unanswered questions affecting the “portability” or recognition of the marriage, including taxation implications; whether a child is deemed to be born of the marriage; and the ability of couples to have access to the court, obtain a divorce, and address custody, support, property transfers, division of assets, and retirement planning issues.

Premarital agreements. Premarital agreements for same-sex couples are even more compelling and important than for heterosexual married couples, given the lack of recognition of same-sex marriages in most states, the unavailability of the tax scheme to divorcing couples, and the unavailability of some retirement and death benefits that stem from the federal government, primarily through the Internal Revenue Code and its regulations, as well as the Employee Retirement Income Security Act (ERISA). Likewise, there are state tax implications.

Key among the issues that could be addressed in a premarital agreement is the issue of portability. Although same-sex marriage may be recognized by a limited number of states, if a marriage is challenged and not recognized, a whole host of issues can come into play. It may be wise to require the parties to obtain jurisdiction in an appropriate state or to draft an agreement that becomes a contract and is recognized as such and would be enforceable apart and aside from the marriage. It may be important to address proactive steps toward adoption of any children. It may be important to address the rights and responsibilities regarding health issues for a sick spouse and hospital visitation. A health care proxy may help approximate the kinds of rights that normally would be afforded to the spouse of someone who is in a medical emergency. If a marriage is not recognized and the decedent does not have a will, one of the most glaring issues to arise is that the surviving spouse will not be recognized as a spouse, and, therefore, will receive nothing from that estate.

Obtaining a divorce is and will continue to be problematic for same-sex couples in most of the United States. It may be wise to address this issue by requiring the parties to obtain jurisdiction in an appropriate state or to draft an agreement that becomes a contract and is recognized as such and would be enforceable apart and aside from the marriage. Likewise, consider addressing up front issues such as the impact of taxation and the inaccessibility of the “alimony” scheme. In this way, the adverse tax consequences of transfers, be they in the form of capital gains or gift taxes, can be addressed and avoided as much as possible.

Estate planning. DOMA also complicates estate planning. As a result of the unavailability of tax-free transfers between spouses upon one spouse’s death, estate planning must be done carefully. Portability affects the need for estate planning as well.

If, at the time of death, a party resides in a state not recognizing the marriage, he or she could not be considered a spouse and, therefore, the surviving spouse would not be entitled to an interstate share under state law. Likewise, it is important to advise clients who have parents or other relatives who may wish to provide in their estates for the gay or lesbian child’s children that the child ought to be named specifically and not just included as part of a class, such as “grandchildren.”

Same-sex divorce. Ultimately, all the complexities come to a head when the couple seeks a divorce. The first issue is whether the couple resides in a jurisdiction that will recognize the marriage and, therefore, be in a position to provide access to the courts for purposes of a divorce. If not, the state will not allow a party to such a marriage to file a complaint for divorce, and the host of statutory enactments and case law dealing with divorce is not available.

Even when the portability issue is overcome and the parties live in a state that recognizes same-sex marriage, divorce remains complicated. In dividing assets and providing for support, complications arise immediately. Because the provision of alimony would not be recognized, one party ordered to pay support to the other would not be eligible to deduct such payments when made.

Division of assets becomes even more complicated and clouded. Certain assets transferred between parties are found in most marriages. They include a marital home, bank or stock and savings accounts, retirement benefits, and personal property. In the straight divorce world, any and all of these transfers are non-recognizable, without tax implications between the parties. That is not the case for same-sex couples. For example, let’s assume the marital home is jointly owned and valued at $1 million with a $250,000 basis. It is agreed that the home is to be transferred to one party. This transfer would result in a taxable event with implications both for gifting and capital gains taxation. There would be a $500,000 exemption, with $250,000 of capital gain realized. Further, the transfers may be considered as gifting of $375,000. Alternatively, if the house was ordered to be sold, the parties would be able to utilize the $500,000 capital gains exclusion. However, what if the marital home had been held in one name? In that instance, unlike a same-sex married couple, unmarried same-sex couples would have only a $250,000 capital gains exclusion. Query whether the gift tax exception for transfers made in release of support rights and transfers made pursuant to a court order could apply. Moreover, the application of DOMA to these exceptions cannot be ruled out in the same-sex-divorce context.

Another difficulty is the unavailability of Qualified Domestic Relations Orders as they relate to certain retirement benefits. Thus, if a case goes to trial and judgment, attorneys and judges would be unable to consider the divisibility of retirement assets because these assets would not be subject to division. The result could potentially leave one party in a shortfall situation with presently utilizable assets and a large retirement benefit plan while the other party has significant liquid assets but no retirement benefits in the future. Another issue faced by courts in gay and lesbian divorces is the application of certain factors in determining what would be a fair and equitable division of assets and provision of alimony.


Back to Top