At long last, Governor Cuomo and the New York State Legislature have legitimized same-sex marriage.
This is something that should have been done years ago. The United States Constitution guarantees all Americans equal treatment under the laws; there are no exceptions, even for the most extenuating circumstances. If American neo-Nazis have the constitutional right of freedom of speech and the courts uphold their rights to public assembly, it is hard to see how same-sex marriages can further erode the American cause. So, beginning July 24, 2011 marriages between individuals of the same sex will be permitted to be solemnized.
So, is that the end of the story? Not by a long shot!
The Equality Under Marriage Act simply amended the provisions of the New York State Domestic Relations Law to remove any gender reference from the Act and added provisions specifically geared toward same-sex marriages. The fallout does not stop there. Once married, each individual will possess the same rights afforded any spouse under New York law. This this creates a number of pitfalls that couples contemplating marriage should be aware of.
Under New York State law (and most other states), a spouse is not allowed to disinherit a notice spouse. New York State Estate and Trust Law 5.5.1A requires that a valid spouse is entitled to one third of the deceased spouse’s estate. This is referred to as the Right of Election. The term “estate" as used in this section of law does not mean property owned solely by the deceased spouse. In determining the value of the estate for elective share purposes, a number of additional assets are added back in to the deceased’s estate to determine the amount of the Elective Share. Among these items are:
- All jointly owned property owned by the deceased spouse and surviving spouse
- Bank and brokerage accounts that have a named beneficiary
- Individual retirement accounts
- Gifts made within one year of death
- Gifts made in contemplation of death (deathbed gifts)
The value of the above amounts (and several other categories) are added together to determine the amount of the "augmented estate" for right of election purposes. The surviving spouse is entitled to receive one third of this amount. If any of the above items are received by the surviving spouse, the value of the property received is deducted from the amount of the elective share to determine the net minimum amount due to the surviving spouse. In the case of assets owned jointly with the surviving spouse, only 50% of these assets are charged to the elective share, as under the law, the surviving spouse already had ownership of an undivided one half interest in these accounts. If the amount received by the surviving spouse exceeds the elective share, there is nothing additional due to the surviving spouse; if there is a shortfall, the estate must make up the difference. Life insurance is not subject to the right of election. As one can imagine, if not planned correctly, serious issues can arise.
Like any other couple about to be married, same-sex couples should determine whether they need a prenuptial agreement. In the prenuptial agreement, the couple can spell out the manner in which they wish their assets to be distributed. Under a properly drawn prenuptial agreement, each person can waive the terms of the right of election and set forth what how they intend to provide for each other.
The key here is the word "properly." In order to be upheld, a prenuptial agreement must meet stringent tests. The waiver of the right of election is an important property right owned by married couples, and any fault in the preparation of the document can render it useless. The two main areas that cause most prenuptial agreements to fail is a lack of proper legal representation and failure to fully disclose all assets.
If one party is not represented by counsel, it is almost certain that the prenuptial will not be honored. The purpose of this requirement is to assure that one party to the prenuptial agreement is not signing it due to duress or coercion (many prenuptial agreement or presented immediately prior to the wedding ceremony) and fully understands the legal implications of the agreements. Even if the right to counsel is waived, the agreement may still fail; the surviving spouse can still claim duress and coercion. Best practices dictate that each party be represented by individual independent counsel. In fact, most prenuptial agreements contain a provision that recites that each party has been represented by counsel, the name of the attorney and a statement that the attorney has reviewed and advised them of all of the aspects of the agreement and they fully understand its terms and realize that they may be forfeiting important rights. Finally, in many instances, the attorneys also sign the prenuptial agreement with a similar statement.
Full disclosure means that each party is fully advised of the extent and nature of the property and rights owned by the other. Each party must fully know and understand the extent of the other party’s assets in order to make the prenuptial agreement valid. This includes all assets, regardless of whether or not they are owned jointly or with a third party, with a degree of specificity that will allow them to be identified easily. If not disclosed, it is conceivable that the other person in the marriage will be waiving rights in property that they do not know exist. This too can make the agreement invalid. Many clients want to maintain their privacy. It extremely common for the terms of the prenuptial agreement to be finalized and the list of assets are only attached at the time of signing. This allows the privacy of each party to be respected during the time it takes to prepare and sign the prenuptial agreement.
However, the property issues between married couples pale by comparison to the tax implications for same sex married couples.
Under Section 611 of the New York State Tax Law, a married couple may only file jointly for New York State income tax purposes if they file a joint return for federal income tax purposes. The rub is the federal government and the Internal Revenue Service still do not recognize same-sex marriages. As far as the IRS is concerned, same-sex couples must file separate returns for federal income tax purposes as if they were single. That may actually prove to be a benefit, as two single individuals will generally pay less income tax than if the return was a joint return. However, it is unclear what position New York State will take concerning taxation and finance matters. In most cases, individuals filing as a single person receive the full benefit of all deductions, while a married couple filing separately must prorate deductions between both parties. This often results in substantially higher New York income tax. It would be my guess that New York State will act in the future, however, we all know the way things get done in Albany.
The estate tax also provides a major obstacle. Under the Internal Revenue Code, any property left to a spouse is a deduction against the estate of the deceased spouse. As a result, there is no federal estate tax on property left to a surviving spouse. Again, the IRS does not recognize same-sex marriages. Therefore, the estate of the deceased spouse would be subject to estate tax based on the then current exemption. As of now, there is a federal exemption for estate and gift tax of $5 million per individual. This minimizes the problem at the moment; however, Congress must act to either extend the statute or make it permanent no later than December 31, 2012 or the law will revert to its 2001 level of $1 million per asset. Should this occur, the results would be disastrous as the combined Federal and New York State estate tax rate is effectively 63% of the value of an estate in excess of $1 million.
To further complicate matters, the New York State Tax Law follows the Internal Revenue Code as it existed on July 1, 1998. As a result, in order to qualify for marital deduction in New York, it must also qualify under federal law. Again, either New York must act or the federal government must recognize same-sex marriages. Since the latter is highly doubtful in the foreseeable future, we are left in the position of waiting for the New York State tax commission to digest the changes in the law. The same is also true for gifts with the sole exception that New York State does not have a gift tax. Therefore all gifts in excess of the exemption amount would be taxed at up to 55% of the value in gifts in excess of the exemption in place at the time.
There are many other areas that same-sex couples must review prior to the ceremony, or they risk unintended results. In the more than thirty years that I have represented members of the GLBT community, I have found many individuals downplay the importance of this type of planning. It is imperative that all couples considering marriage consult an attorney familiar with the issues outlined above. Note that these issues are just the surface of other statutes and regulations that need to be discussed in order to assure that the legal rights of all parties are protected and understood.