Same-Sex Spouse Conflict Creates Financial Tangles

Kimberly Watson, Editor in Chief
June 15, 2012 /

Rejection of same-sex marriages was contained in the 1996 Defense of Marriage Act. It declared that no state need recognize a same-sex marriage in another state. This conflicted with the Federal law, which gave recognition to same-sex marriages in the United States and abroad. The conflicting laws of State and Federal and between States, has created financial tangles with same-sex spouses.

An example of this predicament is a Dutch citizen who married her partner in Amsterdam under Dutch law in 2001. This was followed in 2007, by a civil ceremony in New Jersey. However, according to the U.S. Federal law, she is not married, a factor that is creating obstacles in her action for divorce, due to financial tangles with same-sex spouses.

The United States Appeals Court I Boston, last week ruled that the Defense of Marriage Act, was unfair in denying Federal benefits to same-sex couples who were married under State law. This decision would be applicable to same-sex couples within the First Circuit. Massachusetts, Vermont, New Hampshire and Connecticut permit marriage of same-sex couples. However, the court stayed the decision, until the next stage in the appellate process, which is most likely to be a Supreme Court ruling.

Meanwhile, despite support from President Obama and various civil rights groups, gay people face more financial tangles than heterosexual couples. It is reported that unlike a federally acknowledged spouse, one that is gay cannot deduct any awarded support payments for her Federal taxes.

On dissolution of a same-sex union, a Judge issued a qualified domestic relations order, which directed one partner to give the other, a portion of her 401(k). However, a company is unable to distribute this money unless the partner leaves their employ. The other partner is not permitted to roll any payment of this type into a retirement account. Therefore, it would be subjected to tax, which creates more financial tangles with same-sex spouses.

The financial tangles with same-sex spouses generally include filing a joint State tax return in most states and preparing two Federal returns as single persons. This enables the higher earner to make more deductions; for example, mortgage interest, or claim for a child, as head of the household.

A 2010 IRS ruling now makes it necessary, that in states with community property laws and same-sex unions, they must divide their earnings equally, when submitting their tax return individually.


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