Category Archives: DOMA Same Sex Marriage and Bankruptcy

Supreme Court Strikes Down Defense of Marriage Act – How Does it Affect Bankruptcy?

By

The Supreme Court of the United States held that the Defense of Marriage Act (DOMA) was unconstitutional this past Wednesday, June 26, 2013 in United States v. Windsor, Executor of the Estate of Spyer, et al. 570 U.S. ___ (2013). The Defense of Marriage Act defined marriage as between a heterosexual couple for purposes of federal laws. This meant that marriage between same-sex couples were not recognized by the federal government. This recent Supreme Court decision is a historic victory for couples in same-sex marriages.

In the Windsor case, Edith Windsor married Thea Spyer in Canada. When Spyer passed away and left her entire estate to Windsor, Windsor was hit with a huge estate tax bill. If Windsor and Spyer’s marriage was recognized by the federal government, Windsor would have been able to claim the estate tax exemption for surviving spouses. This would mean that Windsor would not have owed anything to the federal government. Windsor paid the estate tax bill and then sought a refund from the Internal Revenue Service. The IRS denied the refund. Windsor brought the lawsuit to the District Court. The court ruled against the United States and ordered the U.S. Treasury to refund Windsor’s tax with interest. The Second Circuit affirmed the District Court’s decision. The Supreme Court granted certiorari and held that DOMA violates the due process and equal protection principles applicable to the Federal Government.

With DOMA struck down, married same-sex couples will be able to enjoy the same federal benefits as married heterosexual couples. One of the biggest benefits is as the Windsor case indicated: significant savings on estate taxes for inheritances because of the exemptions available for spouses. Windsor had to pay over $363,000 in estate taxes. If her marriage was recognized under the federal government, she would not have owed any taxes. That’s over $363,000 in savings. Keep in mind the savings may vary due to the different sizes of each estate.

Another benefit that same-sex couples can now enjoy is that they get to file their federal tax returns together. This may mean higher refunds or lower taxes being paid out since married couples have more exemptions available to them on the tax returns. Previously, same-sex couples would need to file their federal returns as “single” and their state tax returns as “married” if they were in a state that recognized same-sex marriages. This may seem like a trivial thing for people that are used to filing taxes together, but it is a hassle to file so many different returns.

Same-sex couples may now also file their bankruptcy cases together since the federal government now recognizes their existence. Previously same-sex couples would need their bankruptcy attorney to file two separate bankruptcy petitions even if it involved the same assets. This means they would potentially have to pay their bankruptcy lawyer twice and pay the filing fee twice. Now that they can file their bankruptcy petitions together they can save some of their hard earned money.

The above benefits are only some of the benefits of having DOMA struck down. It is not an exhaustive list. There are many benefits, some of them significant, some of them trivial, but to people in same-sex marriages this is a huge step towards equality.