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Place Of Celebration Vs State Of Residence - Determining Federal Marital Status After DOMA Decision

Posted by Michael Kitces on Wednesday, July 3rd, 11:04 am, 2013 in Taxes

Under the Supreme Court decision of United States v. Windsor, Section 3 of DOMA was declared unconstitutional, and as a result the Federal government is required to recognize same-sex marriages that are recognized by the state. However, in Hollinsworth v. Perry the Supreme Court simply ruled that the appellants did not have standing to defend California's Proposition 8 same-sex marriage ban; the court did not actually rule on the legitimacy of Proposition 8 itself, and thus did not address whether Section 2 of DOMA – which exonerates states from any obligation to recognize same-sex marriages – is Constitutional.

As a result, while the Federal government must recognize state-sanctioned same-sex marriages, it is not the case under current law that all states must allow same-sex marriages, nor even that all states must recognize same-sex marriages that originated in other states. Instead, for the time being, the matter remains entirely a state-by-state issue, until/unless a new legal dispute comes forth that specifically challenges Section 2 of DOMA, and/or Congress otherwise repeals or alters the remaining provisions of DOMA.

However, this current state of affairs creates significant challenges for same-sex couples who marry in a state that recognizes the marriage, but later relocate to a state that does not. Under Federal law, the treatment of such situations varies, depending on whether the Federal provisions look to the "state of residence" to determine marital status, or the "place of celebration" - and currently, some Federal programs adopt one definition, while some utilize the other. Thus, for the time being, financial planners will need to be cognizant of which status applies to a client, which rules apply to a client, and stay alert as the definitions are anticipated to change in the coming months at Federal agencies and programs seek to refine their rules and regulations for determining marital status in light of the Supreme Court decision.


Determining Marital Status Of Couples

In the case of 'traditional' opposite-sex marriages, determining a couple's marital status is relatively straightforward, as all states recognize a legal marriage that has occurred in other states. In the context of same-sex couples, however, the outlook is different, as currently only 13 states (plus the District of Columbia) recognize same-sex marriages, while the other 37 states do not, and under current law states have no requirement to recognize the same-sex marriage that occurred in another state.

This determination is important because the entire focus of the United States v. Windsor case before the Supreme Court was to recognize that for Federal purposes, the government must honor whatever marital status is sanctioned by the state. While this decision now requires the Federal government for the first time to recognize same-sex marriage that occurred legally in a state that permits it, the outcome also means that the Federal government does not have to recognize the marriage of a same-sex couple when the state does not.

While planning around this is relatively straightforward in circumstances where a same-sex couple gets married in a state that recognizes the marriage and remains there, it creates unique complexities if/when the couple later relocates to a state that does not recognize the marriage. If the Federal government is supposed to defer to the states to determine marital status, does the Federal government recognize the marriage that was legitimate in the original state, or ignore the marriage that is no longer recognized in the current state? As it turns out, rules are in place to make this determination - but they are not applied consistently.

Place Of Celebration Vs State Of Residence 

In the case of Federal rules and benefits for married couples, the laws and regulations vary as to whether marriages are recognized based on the couples’ state/place of residence, or the couples’ state/place of celebration (i.e., where the couple was married). For instance, a same-sex couple that got married in a state that allowed it but relocated to another state later that doesn’t recognize same-sex marriages might still receive Federal marriage treatment based on the place of celebration (the state that allowed the marriage), but not the place of residence (the current state that doesn’t recognize the marriage).

In practice, the treatment of state-of-residence versus place-of-celebration is inconsistent in the Federal laws. The Internal Revenue Code (i.e., income and estate tax laws) are generally based on the current state of residence, as are the rules from the Social Security Administration. On the other hand, immigration laws (e.g., to determine eligibility for a non-citizen spouse to immigrate to the U.S.) are based on place of celebration. Thus, for instance, a same-sex couple with a non-citizen spouse that got married in a country that allows same-sex marriage might have the marriage recognized for immigration purposes, but if the couple moved to a state that doesn’t allow same-sex marriage the couple would still not be treated as married for income and estate tax and Social Security purposes even though they were treated as married to obtain a green card.

As a result of these inconsistencies, same-sex couples should be cognizant of not only the decisions to marry, but also the tax and legal ramifications of traveling to another state to get married, if they do not intend to permanently relocate/reside there. In such scenarios, it's possible that the couple will immediately lose their marital status for most Federal benefits and protections upon returning home, and in the extreme if the home state does not recognize the same-sex marriage, it may also be impossible for a same-sex couple to even get divorced after returning home (unless the couple actually relocated back to the place of celebration just for the purposes of ending a marriage!)!

Clarifying Marital Status Determination

Already, President Obama has directed Attorney General Eric Holder to begin a process of reviewing all Federal rules and regulations to try to clarify the inconsistencies in the determination of marital status for Federal purposes. Some same-sex marriage advocacy groups have already begun to lobby for a uniform Federal “place of celebration” rule to ensure that at least for Federal purposes, same-sex couples that are legally married can be recognized as such under Federal law even if they relocate to a state that does not recognize the marriage. It is anticipated that it will take many months (if not a few years) for Federal regulations to be fully refined and made more uniform, and changes to some rules may require an act of Congress (i.e., while many of the regulations of various Federal agencies can be altered by directives from the White House administration or the agencies themselves, some definitions of whether marriage is determined based on place of celebration or place of residence are actually part of prior laws that would have to be amended by Congress itself).

Nonetheless, it is notable that even if Federal laws ultimately adopt a uniform approach of determining marriage status based on the place of celebration, the reality is that same-sex couples may still face significant complications relocating to a state that doesn’t recognize their marriage under current law. Lack of recognition for same-sex couples living in such states could result in restrictions to their ability to enjoy state married-couple protections for bankruptcy and asset protection purposes, rights to visit a spouse and make medical decisions on his/her behalf in the event of an incapacitating health event, and other similar complications (not to mention the scenarios that arrive even just by being temporarily in a state that doesn't the marriage, or visiting temporarily to a state that will conduct the marriage but the couple doesn't intend to remain there).

Though laws in the coming years may be adopted to help resolve these significant ambiguities, they will remain material planning challenges and concerns for same-sex couples for the foreseeable future. In the meantime, though, the Supreme Court decision still offers significant immediate planning opportunities, including filing amended income tax returns for the past 3 years, amended gift and estate tax returns, applying for Social Security spouse, survivor, or ex-spouse benefits (or engaging in File-and-Suspend and Restricted Application strategies), gaining access to health insurance through a same-sex spouse, and taking advantage of spousal provisions for retirement accounts (especially for inherited retirement accounts). 

Interested in more information on the planning implications of the Windsor ruling? The May/June issue of The Kitces Report was released this Friday, July 5th, and provides in-depth coverage on the immediate and longer-term planning implications and opportunities for same-sex couples after the Supreme Court's DOMA decision, and is eligible for 1.5 hours of CFP CE credit. Further information on subscribing and how to join can be viewed here, and new subscribers can use the coupon code "PlanningAfterDOMA" (without the quotes) for 10% off a first-time auto-pilot subscription thru July 12th.

Webinar Alert: On Friday, July 12th, Nerd's Eye View will be offering a webinar eligible for 1 hour of CFP CE credit on "Planning for Same-Sex Couples In The Aftermath Of The Supreme Court DOMA Decision" at 2PM east coast time. Click here for further detail or if you would like to register for the presentation! 


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