Client tax returns, insurance policies and wills are just a few of the documents that advisers are thinking they might have to throw away and rewrite if the federal law that bans gay marriage is overturned by the Supreme Court.
The scenario is not unlikely after a majority of the court's nine justices last Wednesday sounded dubious about the constitutionality of the federal Defense of Marriage Act, according to those who heard the arguments.
DOMA, which states that a marriage must be between one man and one woman, is the 1996 law that makes it impossible for same-sex couples who were legally married by their state to receive federal marital income and estate tax deductions, as well as other benefits, such as Social Security spousal and survivor benefits, and Veterans Administration survivor benefits and pensions.
"KISS DOMA GOODBYE'
“From everyone I've spoken to, you can kiss DOMA goodbye,” said George Karibjanian, an estate-planning lawyer with Proskauer Rose LLP. “If so, and you are doing a will or trust for a gay couple, they will have all the federal benefits that a spouse would receive at death.”
A state's authority to allow or ban gay marriage is part of a second case about which the high court heard arguments last week. That centers on California's Proposition 8 law — a voter initiative requiring a marriage be between a man and a woman. The justices' questions in that case led most observers to conclude that its decision will be written narrowly to apply, at most, to California alone.
Supporters of gay rights had hoped this case would result in the outlawing of state provisions banning same-sex marriage. Gay marriage is legal in nine states — Connecticut, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont and Washington — and the District of Columbia. Most other states prohibit it in their constitutions or have passed laws against it.
The first thing that financial adviser Deborah Neiman of Neiman and Associates LLC would evaluate for clients if DOMA were overturned is whether gay couples would benefit from amending their 2012 tax returns to file jointly as a married couple. Second, she would examine whether retired same-sex couples should adjust how they collect Social Security benefits to allow for spousal income.
REASSESSING LEGAL DOCUMENTS
Property agreements, wills and insurance policies also would have to be reassessed, she said. Some private pensions that allow for a spouse to be a beneficiary would apply to same-sex couples, eliminating the need for insurance that some couples purchase in order to make up for this support, Ms. Neiman said. If the Supreme Court overturns DOMA, same-sex couples also may qualify for spousal discounts for certain insurance policies.
Financial plans for Ms. Neiman's gay clients were written to take the lack of marital rights into account. Now it may be time to start over.
“We did all the planning with this in mind, knowing that we may have to one day scrap it,” she said. “There will be a combination of new planning that needs to be done and retiring some legal documents” that were created specifically because of rights that weren't guaranteed.
Mr. Karibjanian said same-sex couples who believe DOMA will be overturned and think they could have saved money filing taxes jointly should immediately file protective claims for refunds for tax years going back as far as 2009. That would leave those tax years open so returns could be amended.
Adviser Jill Hollander of Financial Connections Group Inc., however, said she would never bet on how the Supreme Court will rule.
“The questions they asked seemed to follow people's political philosophies,” Ms. Hollander said.
The adviser said some of her clients in same-sex marriages have asked for extensions on their federal taxes until after the Supreme Court rules on the two cases, which is expected to happen by the end of June.
Ms. Hollander said some of her clients are putting off estate planning in case they end up with equal federal rights.
It's unclear whether the court will be swayed by public opinion, which has shifted over the past decade. Today about 49% of the country supports and 44% opposes gay marriage, according to the Pew Research Center. Ten years ago, 33% supported and 58% opposed gay marriage.
“In this case, the country is further ahead of the curve for equality than perhaps the congressional and legal systems are,” Ms. Hollander said.
