Since the U.S. Supreme Court released its decisions on the same-sex marriage cases, the state of California has experienced a flurry of media surrounding the overturning of Proposition Eight. With the dust cleared, there are now a number of housekeeping items to get in order, including how finances are sorted out in the event of a same-sex divorce.
Not only is same-sex marriage legal in California once again, but the federal government is no longer allowed to deny government benefits to married couples, same-sex or not. Yet, the Supreme Court ruling did not go into the detail as to how this might all work out procedurally, leaving issues surrounding same-sex divorce, such as property division, a grey area of law in some states.
For same-sex couples, it is not clear if they marry in a state like California, where same-sex marriage is legal, and move to a state where same-sex marriage is not, the federal government will still consider them legally married or legally divorced for purposes of benefits.
One particular benefit to which same-sex couples should be entitled involves reporting alimony in the event of divorce on a tax return. After the Supreme Court ruling, divorced same-sex couples should be able to deduct alimony payments from their tax return and further divide 401k and IRA accounts without paying a number of penalties. Yet, whether a couple will receive such deductions and tax breaks might depend on where they decide to live.
According to sources, the issue will come down to whether the government agency paying out benefits or permitting tax breaks recognizes the “Day of Celebration” or “Place of Residency” test for determining whether a couple is privy to the ruling. If the agency uses “Day of Celebration”, it will not matter whether the couple moved to a state that does not recognize same-sex marriage. On the other hand, if the agency chooses “Place of Residency”, the couple will not receive the benefits or tax breaks if they move to a state where their marriage is not legally recognized.
These are difficult questions with unclear answers at this point in time. Because the state of California recognizes same-sex marriages again, any same-sex couple applying for federal benefits in the state should be privy to such requests.
Source: Tri-City Herald, “With gay marriage decision settled, couples try to sort our finances,” Lindsay Wise, July 15, 2013