Apr 01, 2014

Everybody has an opinion

By: Paul Ebeltoft

Last June the U.S. Supreme Court struck down the Defense of Marriage Act (DOMA) provisions preventing the federal government from recognizing a legally valid marriage of a same-sex couple. Even for the intrepid, the case is daunting. Five Justices joined in the majority decision. Four justices joined in or filed two dissenting opinions. The Chief Justice wrote his own. One thing was clear. Everybody has an opinion.

United States v. Windsor

Here is the short story: Edith Windsor married Thea Spyer in Canada. Their marriage was legally valid in Canada. They moved to the United States. Thea died, leaving a sizable estate to Edith. Edith, the surviving spouse, was denied benefit of the inheritance tax spousal deduction available to heterosexual couples due to the definition of “marriage” and “spouse” provided by DOMA. Under protest, Edith paid $363,053 in estate taxes because DOMA made her Canadian marriage a nullity, even though it was perfectly legal in Ontario where she met and married Thea. Edith brought an action for refund of federal estate taxes and for declaration that pertinent provision of DOMA violated the Fifth Amendment to the Constitution. A clearly divided Court gave her the victory she sought. The Supreme Court held that DOMA defining, for federal law, “marriage” only as a legal union between a man and a woman and “spouse” only as a person of opposite sex, was unconstitutional as a deprivation of the liberty of the person protected by the Fifth Amendment to the Constitution. The Court said, “The Constitution's guarantee of equality must at the very least mean that a bare congressional desire to harm a politically unpopular group cannot justify disparate treatment of that group.”

And in dollars and sense, it means…?

This ruling is significant. The financial and emotional disadvantages it redressed were numerous. I only have space for just a few examples.

In addition to being able to claim the spousal exemption on death of a same-sex spouse, same-sex married couples can now gift assets between themselves and not have the gift reduce the federal lifetime estate tax exemption. Before Windsor, only heterosexual couples could benefit from use of this estate planning tool.

Same sex married couples can now file income taxes, jointly or separately, as best benefits them. Under DOMA they were required to file as individuals; most often not the best method unless both spouses are high earners.

Before DOMA was struck down, same sex couple, legally married, had to impute income (report that income was realized when no actual dollars were earned) and pay tax on the imaginary income if one spouse’s employer group health plan gave coverage to the same-sex partner.

Enter the IRS

Under the Supreme Court’s Windsor decision, things had to change at the IRS. Shortly after the decision, in late September, 2013, the IRS announced that same-sex couples married under a valid state law are legally married for purposes of the Internal Revenue Code. The IRS ruling did not stop there.

What the Windsor Court did not address is whether a state may decline to: (1) issue valid marriage licenses to same-sex couples resident in a state, or (2) recognize a legally valid marriage of a same-sex couple from another state. The IRS answered the second point. The IRS holds that a same-sex couple married in a state that recognizes such unions are married for tax purposes even if the same-sex couples moves to a state that does not recognize same-sex marriages.

And what happened next?

Six months after the Windsor ruling struck down DOMA using the federal Constitution, and three months after the IRS ruled that federal tax benefits follow legally married same-sex couples wherever they go, North Dakota Attorney General Wayne Stenehjem issued an opinion that sets the stage for further conflict. Relying on the North Dakota Constitution and various legislative actions, the Attorney General opined that an individual's previously valid same-sex marriage in another state is not legally recognized in North Dakota. In fact, Attorney Stenehjem said, in North Dakota the person is legally single. The Attorney General’s opinion is contrary to the position taken by the Internal Revenue Service, but the opinion governs the actions of state officials until otherwise decided by the courts.

So what’s the problem?

How IRS rulings with regard to treatment of retirement plans and other benefits for married couples applies to same sex-couples legally married elsewhere and now working in the public sector in North Dakota is uncertain. HR professionals for governmental entities particularly will need to be alert. In the private sector, HR professionals also need to closely watch the developing interplay between state positions and federal rules.

Suffice to say that the law is too fluid now for HR to give advice in these areas. But even learning of the need to direct a person to retirement, benefit or insurance plan administrators is a delicate proposition. You know you can’t ask about marital status during a job interview. After hiring, you can inquire about marital status on tax and insurance forms. Will this be enough to make sure that your new employees will seek answers if they are in a same-sex union? Probably not.

It’s not much but…

Here is something you can do. When explaining your new employee hiring packet consider making a nonjudgmental statement that could help your new employee seek answers to issues caused by the tricky interplay between our state and federal positions on same-sex marriage. A statement some are using is:

If you are in a non-traditional relationship, North Dakota law does not recognize the union, even if legal where you were married or where you previously lived. If you have any questions about how your marital status affects your employment benefits, please tell me more. I may be able to direct you to people who can give you the best information possible right now.

And now, for the rest of the story…

Ebeltoft . Sickler . Lawyers is at home and very comfortable in its beautiful (if we say so ourselves) new building at 2272 Eighth Street West, Dickinson, ND 58601. The address is a little deceiving and it is not yet on Google Maps. You can find us at the corner of Fairway Street and 23rd Avenue West, Dickinson, across the street from the West River Community Center and kitty-corner to the new St. Joseph’s hospital. The beautiful landscaping will not be done until late spring but we are all excited about our prairie style building with wide eaves, strong horizontal lines and open air patio spaces. You will like its sleek, modern interior, too. Please visit us. I would love to show you around.

Our interest in serving you

My law firm’s goal is to give understandable information and to foster discussion about real-life issues facing human resource professionals. If we are not achieving that goal or if you would like us to address other employment law issues, please email me at pebeltoft@ndlaw.com We promise to take your comments and ideas to heart.

Disclaimers
(Otherwise known as “the fine print”)

I make a serious effort to be accurate in my writings. These articles are not exhaustive treatises, though, so do not consider them complete or authoritative. Providing this information to you does not create an attorney-client relationship with my firm or me. Do not act upon the contents of this or of any article on our homepage or consider it a replacement for professional advice.

Reprinted with permission from an article submitted for publication in the April, 2014 Southwest Area Human Resource Association newsletter.