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DOMA may create financial tangles in high asset divorce

A federal appeals court in Boston struck down the 1996 Defense of Marriage Act recently. It ruled that by denying same-sex couples the same federal benefits as heterosexual couples, the federal statute violates the rights of married gay and lesbian couples to equal treatment under the law. In addition to creating headaches for same-sex couples during marriage, it can create equally significant issues in the event of divorce, especially in the distribution of marital property.

While the Boston ruling is stayed pending appeal, it could affect Maryland's gay and lesbian community at some point. That's because it is widely believed that this decision and others like it will drive the eventual enactment of the same federal protections for married same-sex couples that heterosexual couples currently enjoy.

DOMA rejected federal recognition of same-sex marriages in the United States and abroad. The financial and legal consequences of DOMA with respect to dissolving a gay marriage with a large amount of assets and/or marital property are staggering.

Under federal law, inheritances, gifts and assignments of retirement benefits are dealt with differently for same-sex couples compared to heterosexual couples. Same-sex couples are required to pay taxes on such transfers when heterosexual couples generally are not. And similar issues may come into play at the time of a divorce.

For example, while spousal support can be deducted from federal taxes for heterosexual couples, it cannot be for those dissolving a same-sex union. Gay and lesbian couples usually have to prepare multiple tax returns because they are not allowed to file a joint federal tax return. Additionally, federal law governs retirement plans and prohibits the transfer of assets in retirement accounts that might be subject to property division in a same-sex couple's divorce.

Therefore, although many in the gay and lesbian community of Maryland may be planning weddings for 2013 when they ostensibly will be legally able to wed, they would be wise to consider all of the financial, legal and tax consequences prior to tying the knot.

Source: Reuters, "In U.S., same-sex spouses may face financial tangles," Temma Ehrenfeld, June 5, 2012

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