Additional DOMA Issues

     As we discussed in our last post, the United States Supreme Court issued its decision in the case of US v. Windsor, more commonly known as the Defense of Marriage Act (DOMA) case. The Court struck down a provision in the law that required the Federal Government to treat same-sex spouses as unmarried for purposes of federal law. It is still unclear when the decision goes into effect and whether it only covers same-sex couples married in a state allowing same-sex marriages and residing in that state. While not related to estate planning, which is normally our primary focus here, there are important planning issues affected by this change about which you and your clients should be aware.

     One area with potentially far-reaching consequences is retirement planning. When reviewing the retirement planning for married same-sex clients remember:

1. In general, the required minimum distribution (RMD) rules are more liberal for married plan participants whether the participant is in pay status or not.
2. The spouse of a deceased employee can roll over a distribution attributable to the employee subject to the same rollover rules as if the spouse were the employee
3. In certain situations, a participant must have spousal consent before the participant can leave retirement benefits to someone other than the spouse, before a lump sum can be taken in lieu of a joint and survivor annuity, and before the plan account can be used as security for a loan.
4. In a divorce, a spouse's pension benefits are often part of the property settlement. When there are pension benefits involved, courts often use a qualified domestic relations order (QDRO) to handle those benefits. Without a QDRO, taxes for the benefits fall on the spouse who earned the benefits even though the other spouse receives the benefits.

     This case will also have an effect on employer-provided health plan benefits. The employee can exclude from income any amounts received from his employer as reimbursement for medical care expenses as long as the medical expenses represent care provided to the employee, the employee's spouse, or dependents. This ruling will expand the employee's right to exclude from income expenses paid for care provided to the same-sex spouse. The same is true for spousal entitlement to health plan coverage under the COBRA continuation rules. 

     While many details of the ruling remain unclear, it is important that we as planners understand the consequences of this decision in order to best serve both our business and individual clients. 

Alan Ferrara