How Windsor Has Made Hiding Money Harder

Pensions and Military Survivor Benefits

Pension income is often one of the largest assets in a marriage, and a single life pension without survivorship benefits results in much higher monthly payouts to the pensioner than a joint pension with survivorship rights. Until now, married same-sex partners could easily keep pensions hidden from one another.

Under the Retirement Equity Act, government and private employees entitled to a traditional pension must obtain spousal consent if they wish to designate anyone other than their spouse as the recipient of the survivorship benefits of their pension. Federal law also requires spousal notification before a married pension recipient can forego survivorship rights.

Similar to pension recipients, a married member of the military cannot opt out of the Survivor Benefit Plan, which requires them to pay monthly premiums, unless his or her spouse has waived participation in the plan in writing. Opting out of the Survivor Benefit Plan means a higher monthly paycheck for service members.

Under DOMA, two people of the same gender could not be “spouses” under federal law. They were therefore exempt from the spousal notification rules. They also had no right to review their spouses' beneficiary designation. Same-sex couples could easily hide benefits or take in substantially higher military pay, all while keeping one another in the dark. Now that DOMA's definition of “spouse” has been struck down, same-sex spouses will need to provide their consent before their partners can fritter away their nest egg.

This means that service members in same sex marriages could, in the past, opt out of the Survivor Benefit Plan and keep the premiums for themselves, all without telling their spouses. Now, they must notify their spouses of the existence of this valuable marital asset, and must get a written waiver before they can elect to forego survivor benefits.'

Federal Aid and Individual Benefit Programs

The end of DOMA's definition of marriage also means that married gay couples will now have to disclose their spouse's income on applications for federal benefits that are allocated based on household income. Under DOMA, the agencies that administer federal entitlement programs did not recognize same-sex marriages, and thus did not require applicants to disclose their spouse's assets or income.

The Supreme Court briefly addressed this issue in Windsor, but focused solely on eligibility for federal student loans. The court's reasoning nonetheless applies to all federal programs that determine eligibility based on a potential recipient's household income, and has already been expressly taken up by a number of agencies, such as the Department of Education and the Social Security Administration.

The Department of Health and Human Services (HHS) announced in September 2013 that it had adopted the IRS's state of celebration policy, which recognizes any legal gay marriage regardless of the couple's state of residency. However, because Medicaid and other HHS programs are administered through unique federal/state partnerships, HHS declined to impose a state of celebration rule on its partner states, but instead permits states to determine their own policies regarding whether to recognize same-sex marriages. This makes for a confusing and potentially conflicting set of rules to follow, and little certainty for same-sex couples who wish to take advantage of HHS programs.

Nonetheless, one thing is clear: Individuals in same-sex marriages who live in states that permit gay marriage and who wish to apply for Medicaid benefits will need to do so as a couple, not as individuals. This benefits the couple if the ill spouse has a higher net worth than the well spouse, who can shield a certain amount of the ill spouse's money from Medicaid spend-down requirements. If the healthy spouse's income is higher, then the couple will be in a worse position than they would have been in terms of their ability to retain assets while collecting Medicaid benefits.

Whether they are financially helped or harmed by the new rules, same-sex spouses who apply for Medicaid will now need to disclose far more information about their personal finances both to the HHS and to their partners under HHS' current policies.

Federal Ethics Laws

Prior to Windsor, DOMA exempted same-sex spouses of government employees from certain federal ethics laws, which meant that all of the spouse's financial information and ties to particular donors or industries could remain safely shielded from public view. For example, as the decision mentions, federal law mandates that executive branch officials and federal judges recuse themselves from working on matters in which their spouse has a financial interest. Additionally, spouses of senators and senate employees cannot accept certain high-value gifts and honoraria. Same-sex couples were also exempt from complying with rules concerning financial disclosures, nepotism, lobbying, and insider trading.

In 2010, the House ethics committee attempted to implement rules defining married same-sex couples as spouses for the purposes of congressional financial disclosure rules. The rules were roundly rejected by advocates for and against gay marriage alike. Those opposed to gay marriage pointed out that the rules contradicted DOMA. Those in favor of gay marriage objected to the rules because they imposed the obligations of marriage on gay couples that were not afforded the same benefits and privileges that straight married couples enjoy.

Citizens for Responsibility and Ethics in Washington filed an amicus brief in Windsor pointing out the gaps in federal ethics laws as applied to gay couples. In its decision, the Supreme Court specifically mentioned DOMA's inequitable effects on the federal government's ability to enforce ethics rules in reaching its conclusion. The Office of Government Ethics has since issued guidance providing that ethics rules will be equally applied to same and opposite-sex couples, and the Federal Election Commission has issued advisory opinions stating that legally married same-sex couples are spouses for the purpose of FEC regulations.

Post-Windsor Developments

Soon after Windsor, the IRS and the Treasury department announced that they would recognize all same-sex marriages performed in states that recognize those marriages as valid even if the couple lived in a state that did not consider them legally married. The policy is especially helpful because Windsor left standing a provision of the law permitting states to refuse to recognize same-sex marriages that are legally performed in other states. Couples wed in states that permit gay marriage will thus have more or less uniform access to the benefits and obligations that flow from Windsor and its consequent shifts in federal policy.

An increasing number of federal entities are adopting state of celebration policies. Agencies that have followed the IRS and Treasury Department's lead include the Office of Personnel Management, the U.S. Citizenship and Immigration Services under the Department of Homeland Security (DHS), the Department of Defense, the Securities and Exchange Commission (SEC), the Department of Labor (DOL), the Employee Benefits Security Administration, and the Federal Election Commission, among others.

Since Windsor, both the DOL and the Employee Benefits Security Administration, which enforce ERISA and other federal laws relating to pension plans, have adopted policies expressly acknowledging any same-sex marriage that is valid in the state in which it was solemnized, regardless of whether the state where the couples resides permits gay marriage.' The Department of Defense also adopted a “state of celebration” rule soon after Windsor. However, Title 38 of the U.S. Code, which included language defining marriage as between a man and a woman, impeded the Defense Department and the Department of Veterans' Affairs from providing health and survivor benefits to same-sex spouses of service members. In early September, Attorney General Eric Holder announced that the executive branch would no longer enforce the law, and would remove all impediments to providing benefits to same-sex couples.

The Department of Defense has also created a special category of leave for people who wish to take advantage of the department's new benefit policies. Individuals who are stationed in states that do not permit same-sex marriage can take a brief leave to get married in a state that allows gay marriage.

Anastasia Wincorn is an attorney and case manager with Charles Griffin Intelligence LLC in New York City. Philip Segal is the founder of Charles Griffin Intelligence, which specializes in fact investigation for lawyers. An attorney, he spent 19 years as a journalist with The International Herald Tribune, The Wall Street Journal, The Economist Group, and NBC News, among others. He can be reached at [email protected].

The Supreme Court's decision in United States v. Windsor , 570 U.S. ___ (2013), which struck down as unconstitutional Section 3 of the Defense of Marriage Act (DOMA) will hamper same-sex spouses' ability to hide assets from each other, from the government, and from the public.

Windsor invalidated the provision of DOMA that defined marriage as a union between a man and a woman for the purposes of federal law. The case involved tax law and the right of legally married same-sex couples to provide tax-free bequests to their spouses. Because DOMA's definition of “marriage” and “spouse” applied to all federal laws, the impact of its demise has resonated throughout the federal government.

Now, not only do same-sex couples get many of the federal benefits other married couples do, they are burdened with the same restrictions: It is now harder to hide money or avoid sharing money in a same-sex marriage than it was before the Court's decision.

Pensions and Military Survivor Benefits

Pension income is often one of the largest assets in a marriage, and a single life pension without survivorship benefits results in much higher monthly payouts to the pensioner than a joint pension with survivorship rights. Until now, married same-sex partners could easily keep pensions hidden from one another.

Under the Retirement Equity Act, government and private employees entitled to a traditional pension must obtain spousal consent if they wish to designate anyone other than their spouse as the recipient of the survivorship benefits of their pension. Federal law also requires spousal notification before a married pension recipient can forego survivorship rights.

Similar to pension recipients, a married member of the military cannot opt out of the Survivor Benefit Plan, which requires them to pay monthly premiums, unless his or her spouse has waived participation in the plan in writing. Opting out of the Survivor Benefit Plan means a higher monthly paycheck for service members.

Under DOMA, two people of the same gender could not be “spouses” under federal law. They were therefore exempt from the spousal notification rules. They also had no right to review their spouses' beneficiary designation. Same-sex couples could easily hide benefits or take in substantially higher military pay, all while keeping one another in the dark. Now that DOMA's definition of “spouse” has been struck down, same-sex spouses will need to provide their consent before their partners can fritter away their nest egg.

This means that service members in same sex marriages could, in the past, opt out of the Survivor Benefit Plan and keep the premiums for themselves, all without telling their spouses. Now, they must notify their spouses of the existence of this valuable marital asset, and must get a written waiver before they can elect to forego survivor benefits.'

Federal Aid and Individual Benefit Programs

The end of DOMA's definition of marriage also means that married gay couples will now have to disclose their spouse's income on applications for federal benefits that are allocated based on household income. Under DOMA, the agencies that administer federal entitlement programs did not recognize same-sex marriages, and thus did not require applicants to disclose their spouse's assets or income.

The Supreme Court briefly addressed this issue in Windsor, but focused solely on eligibility for federal student loans. The court's reasoning nonetheless applies to all federal programs that determine eligibility based on a potential recipient's household income, and has already been expressly taken up by a number of agencies, such as the Department of Education and the Social Security Administration.

The Department of Health and Human Services (HHS) announced in September 2013 that it had adopted the IRS's state of celebration policy, which recognizes any legal gay marriage regardless of the couple's state of residency. However, because Medicaid and other HHS programs are administered through unique federal/state partnerships, HHS declined to impose a state of celebration rule on its partner states, but instead permits states to determine their own policies regarding whether to recognize same-sex marriages. This makes for a confusing and potentially conflicting set of rules to follow, and little certainty for same-sex couples who wish to take advantage of HHS programs.

Nonetheless, one thing is clear: Individuals in same-sex marriages who live in states that permit gay marriage and who wish to apply for Medicaid benefits will need to do so as a couple, not as individuals. This benefits the couple if the ill spouse has a higher net worth than the well spouse, who can shield a certain amount of the ill spouse's money from Medicaid spend-down requirements. If the healthy spouse's income is higher, then the couple will be in a worse position than they would have been in terms of their ability to retain assets while collecting Medicaid benefits.

Whether they are financially helped or harmed by the new rules, same-sex spouses who apply for Medicaid will now need to disclose far more information about their personal finances both to the HHS and to their partners under HHS' current policies.

Federal Ethics Laws

Prior to Windsor, DOMA exempted same-sex spouses of government employees from certain federal ethics laws, which meant that all of the spouse's financial information and ties to particular donors or industries could remain safely shielded from public view. For example, as the decision mentions, federal law mandates that executive branch officials and federal judges recuse themselves from working on matters in which their spouse has a financial interest. Additionally, spouses of senators and senate employees cannot accept certain high-value gifts and honoraria. Same-sex couples were also exempt from complying with rules concerning financial disclosures, nepotism, lobbying, and insider trading.

In 2010, the House ethics committee attempted to implement rules defining married same-sex couples as spouses for the purposes of congressional financial disclosure rules. The rules were roundly rejected by advocates for and against gay marriage alike. Those opposed to gay marriage pointed out that the rules contradicted DOMA. Those in favor of gay marriage objected to the rules because they imposed the obligations of marriage on gay couples that were not afforded the same benefits and privileges that straight married couples enjoy.

Citizens for Responsibility and Ethics in Washington filed an amicus brief in Windsor pointing out the gaps in federal ethics laws as applied to gay couples. In its decision, the Supreme Court specifically mentioned DOMA's inequitable effects on the federal government's ability to enforce ethics rules in reaching its conclusion. The Office of Government Ethics has since issued guidance providing that ethics rules will be equally applied to same and opposite-sex couples, and the Federal Election Commission has issued advisory opinions stating that legally married same-sex couples are spouses for the purpose of FEC regulations.

Post-Windsor Developments

Soon after Windsor, the IRS and the Treasury department announced that they would recognize all same-sex marriages performed in states that recognize those marriages as valid even if the couple lived in a state that did not consider them legally married. The policy is especially helpful because Windsor left standing a provision of the law permitting states to refuse to recognize same-sex marriages that are legally performed in other states. Couples wed in states that permit gay marriage will thus have more or less uniform access to the benefits and obligations that flow from Windsor and its consequent shifts in federal policy.

An increasing number of federal entities are adopting state of celebration policies. Agencies that have followed the IRS and Treasury Department's lead include the Office of Personnel Management, the U.S. Citizenship and Immigration Services under the Department of Homeland Security (DHS), the Department of Defense, the Securities and Exchange Commission (SEC), the Department of Labor (DOL), the Employee Benefits Security Administration, and the Federal Election Commission, among others.

Since Windsor, both the DOL and the Employee Benefits Security Administration, which enforce ERISA and other federal laws relating to pension plans, have adopted policies expressly acknowledging any same-sex marriage that is valid in the state in which it was solemnized, regardless of whether the state where the couples resides permits gay marriage.' The Department of Defense also adopted a “state of celebration” rule soon after Windsor. However, Title 38 of the U.S. Code, which included language defining marriage as between a man and a woman, impeded the Defense Department and the Department of Veterans' Affairs from providing health and survivor benefits to same-sex spouses of service members. In early September, Attorney General Eric Holder announced that the executive branch would no longer enforce the law, and would remove all impediments to providing benefits to same-sex couples.

The Department of Defense has also created a special category of leave for people who wish to take advantage of the department's new benefit policies. Individuals who are stationed in states that do not permit same-sex marriage can take a brief leave to get married in a state that allows gay marriage.

Anastasia Wincorn is an attorney and case manager with Charles Griffin Intelligence LLC in New York City. Philip Segal is the founder of Charles Griffin Intelligence, which specializes in fact investigation for lawyers. An attorney, he spent 19 years as a journalist with The International Herald Tribune, The Wall Street Journal, The Economist Group, and NBC News, among others. He can be reached at [email protected].