In the typical mad rush to end the Supreme Court’s latest term, the justices struck down in June one of the key portions of the federal Defense of Marriage Act, or DOMA. The act essentially sought to prohibit the recognition of same-sex marriages under federal law.
It has two core provisions:
- Section 2, which allows states that do not recognize same-sex marriages to deny marriage benefits to same-sex couples married in another state
- Section 3, which denied same-sex couples any marriage benefits conferred under federal law regardless of the legal status of their union.
In United States v. Windsor, the Supreme Court struck down Section 3 as unconstitutional, finding “the principal purpose and the necessary effect of this law are to demean those persons who are in a lawful same-sex marriage,” which constitutes a “deprivation of the liberty of a person protected by the Fifth Amendment of the Constitution.”
In reaching this conclusion, the court did not evaluate the constitutionality of Section 2 because that provision was not challenged. The court, however, did recognize the traditional power of the states to define marriage and specifically confined its decision to “lawful same-sex marriages.”
This begs the question: What is a lawful same-sex marriage? It is clear that if a same-sex couple resides in a state that recognizes their union as a “lawful marriage,” that marriage is lawful for all purposes under federal law. The court noted its decision will affect more than 1,000 federal statutes that confer benefits and impose obligations on married people.
Thirteen states—California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington—and the District of Columbia currently issue marriage licenses to same sex couples. In these jurisdictions, it is clear that same-sex married couples will be treated exactly like heterosexual married couples under both state and federal law.
What’s unclear is the status of same-sex couples who legally marry in one of those 13 states or the District of Columbia but who move to or reside in one of the 37 states that do not recognize same-sex marriages. Will they be considered legally married under federal law?
The federal agencies that oversee the laws that affect married couples, such as the Internal Revenue Service, the Department of Labor and the Department of Health and Human Services, are expected to issue conforming guidance soon. Pundits are divided on potential outcomes. Some point to a long-standing IRS practice outside the same-sex marriage context of using a “residency rule” to determine whether a couple is married for federal tax purposes. Under this rule, the IRS recognizes a marriage only if the state in which a couple resides recognizes the marriage. Others expect the Obama administration to be more generous here. Either way, further litigation is likely.
A second significant open question is whether the decision applies retroactively. I believe that it clearly does for two reasons. First, the court applied its decision retroactively in Windsor. Second, a law that is found unconstitutional is by definition—at least in most cases—deemed to be unconstitutional from its inception. Any of your clients that offered same-sex spousal benefits in the District of Columbia or one of the 13 states that recognized same-sex marriages therefore should have claims for payroll tax refunds. Affected employees might have a right to claim refunds of both income and payroll taxes because the IRS required same-sex spousal benefits to be treated as imputed income to the employee prior to Windsor. Whether those couples who reside in one of the other 37 states may make similar refund claims remains unclear.
In addition to eliminating imputed income for benefits provided to “lawfully married” same-sex spouses, the decision will affect many other employer-provided benefit rights:
- Flexible Spending Accounts & Health Savings Accounts. These funds may be used to pay the medical expenses of spouses, including “lawfully married” same-sex spouses regardless of whether that spouse is a dependent.
- Plan Enrollment/HIPAA Special Enrollment Rights. Marrying or divorcing a legally married same-sex spouse or other qualifying events for a legally married same-sex spouse (such as losing eligibility for coverage under a different plan) now will allow an employee to change his cafeteria plan elections in the middle of a year.
- COBRA. Legally married same-sex spouses will have the right to elect COBRA continuation of coverage upon divorce and will have an independent right to COBRA coverage if their spouse’s employment is terminated or if their hours are reduced.
- FMLA. Employees will be entitled to Family & Medical Leave Act leave to care for legally married same-sex spouses, and a legally married same-sex spouse on active military leave will trigger FMLA rights.
Employers that offer spousal benefits to employees in one of the 37 states that have not legally recognized same-sex marriages may continue to deny same-sex spousal benefits to employees residing in those states if they so choose without any apparent legal peril, at least for the moment. Employers that offer spousal benefits to employees in the District of Columbia or one of the 13 states that legally recognize same-sex marriages but that deny such benefits to same-sex spouses, however, do so at their peril and are likely to be faced with discrimination litigation in the near future.
I know some are viewing the Windsor decision as the beginning of the end. I think it is likely to be viewed in retrospect as the end of the beginning, both in terms of the developing jurisprudence in this area and with respect to the evolution of gay rights in America.