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The Impact of the Windsor Case

The Supreme Court's DOMA decision may seem like a matter of just viewing the world with a new definition of marriage, but it's not that simple.

Judith A. Hasenauer, 01/23/2014

The year was 1996, and it was truly a different time. It was the year that Congress passed the "Defense of Marriage Act" or "DOMA." Fast forward to 2013, and the U.S. Supreme Court ruled in United States v Windsor ("Windsor") that a major provision of DOMA was unconstitutional. In this and a series of articles to follow, we will discuss what impact this decision has had and what it means to advisors of gay and lesbian couples.

Windsor itself dealt with the federal estate tax exemption. Edith Windsor and Thea Spyer were lawfully wed in Ontario, Canada. They were residents of New York, which recognized their marriage. When Spyer died in 2009, she left her entire estate to Windsor. Windsor sought to claim the federal estate tax exemption for surviving spouses but was barred from doing so by Section 3 of DOMA, which provided that, in any federal statute, the term "marriage" meant a legal union between one man and one woman as husband and wife, and that "spouse" refers only to a person of the opposite sex who is a husband or a wife.

Windsor paid the estate taxes and sought a refund, which the Internal Revenue Service denied. The District Court ruled against the government, finding Section 3 unconstitutional. The Second Circuit affirmed. The government failed to pay, setting the stage for certiorari to the Supreme Court.

After the Supreme Court's ruling in Windsor, same-sex couples are eligible for federal benefits in the same manner as opposite-sex couples--but only to the extent that they married in a jurisdiction that recognized same-sex marriages. For example, a surviving spouse of a same-sex marriage can apply for spousal benefits under Social Security or spousal pension benefits for a retired federal worker. Participants in a civil union are not afforded the same benefits.

At first blush it may seem like a matter of just viewing the world with a new definition of marriage. However, it is not that simple. In some cases, states have enacted similar statutes to DOMA, others have adopted statutes that permit same-sex marriages, and others permit something called a "civil union" or "registered domestic partnership."

However, the Supreme Court failed to rule on the much broader issue of the constitutionality of same-sex marriages. While Windsor is clearly a landmark decision, it left unanswered a number of issues that regulators and the courts must unravel. For example, spousal benefits are defined under pension regulations, and certain tax code provisions are dependent on marital status. These concepts have also been incorporated into life and annuity contracts by insurance companies. What happens to all those plans and insurance policies that relied on DOMA? Seventeen years is not an insignificant amount of time.

As a result of Windsor, the president directed the attorney general to work with other members of the cabinet to review all affected laws to ensure that the decision in Windsor is implemented swiftly and smoothly. The U.S Department of Labor, Employee Benefits Security Administration, issued Technical Release No. 2013-04, which is titled, "Guidance to Employee Benefit Plans on the Definition of 'Spouse' and 'Marriage' under ERISA and the Supreme Court's Decision in United States v Windsor." The U.S. Treasury Department issued Rev. Rul. 2013-17 to address several issues for federal tax purposes that were raised by Windsor. We will refer to these collectively as "Releases."

These Releases provide that when considering the effect of federal law, the term "spouse" means individuals who are lawfully married under any state law, which by its terms includes any person married to a person of the same sex who was lawfully married in a state that recognizes same-sex marriages.

Judith A. Hasenauer, JD, CLU, is an attorney with the law firm of Blazzard & Hasenauer, P.C. She devotes her practice exclusively to the financial services industry, providing consulting on the development and regulatory clearance of products, compliance issues, distribution issues and related matters, such as advisory activities and industry initiatives.

The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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