When the U.S. Supreme Court overturned the Defense of Marriage Act last month, it was a big boost to Minnesota couples who are hoping to take advantage of the state's recent legalization of same-sex marriage. Amid all the celebrations that came with these recent changes in the law, many may have missed the impact they will have not only on marriage, but on divorce.
The Defense of Marriage Act denied federal benefits to same-sex married couples, even when they were married and lived in a state that recognized same-sex marriage. The Supreme Court ruled that this discrimination was unconstitutional, and that the law must be overturned. The case at the heart of the decision involved a woman who had to pay estate tax on the sizable inheritance she received when her wife died, but a very similar tax comes into play when a high net worth couple divorces.
Ordinarily, when one individual transfers a large amount of money to another, a federal gift tax kicks in. There is no such tax, however, when one spouse transfers money to the other during the marriage, upon death or as part of a divorce settlement. Under DOMA, same-sex marriages were not recognized by the federal government, so this tax would still apply to divorce settlements that were over a certain specified amount. Now that DOMA is gone, that tax will not apply. Of course, all the other problems that come with a complex asset division will still come up.
There are still many issues that can complicate same-sex divorce, especially when the couple was married in a state where such marriages are legalized and moved to one where they are not. These splitting couples may have to come to a state such as Minnesota to get a court to handle their divorce.
Source: MarketWatch, "Supreme Court simplifies gay divorce," Quentin Fottrell, June 26, 2013