Businesses, including law firms, are taking stock of what needs to be done in response to the U.S. Supreme Court’s decision overturning a key part of the federal Defense of Marriage Act.
While business lawyers caution against “knee-jerk” responses, they have a laundry list of issues for human relations professionals to consider, including the rules for health care benefits, life insurance plans, tax withholding and the Family Medical Leave Act.
Lawyers are mostly urging businesses to go slow, trying not to anticipate how federal agencies will develop rules and regulations in response to the decision in U.S. v. Windsor.
“Our advice has been, ‘Let’s wait awhile before we jump into anything,’” said Roanoke’s Alton L. Knighton Jr. “There are a lot of unanswered questions, including, ‘To what extent is one state going to recognize same sex marriages authorized in another state?’”
A wrinkle in the federal definition of “spouse” shakes the legal fabric underlying most employee benefit plans, including ERISA and the Internal Revenue Code.
“There are a lot of employee benefit provisions where marital status is critical,” Knighton said.
“We’re left with the question, ‘What is the definition of spouse,’” said Evelyn Small Traub of Richmond.
After Windsor, it appears “spouse” is determined by state law for federal tax purposes. For 13 states and the District of Columbia that acknowledge same-sex marriage, therefore, a “spouse” would include a same-sex married partner. For Virginia and other states that do not recognize same-sex marriage, the same-sex partner is no more than a friend.
Some of the federal employee-benefit-related laws, such as the Family Medical Leave Act, determine the status of a marriage based on where the employee resides. A same-sex couple married in New York would not be entitled to marriage-based benefits if they moved to Virginia, said Richmond lawyer Marc Purintun, who has been advising business clients on the impact of Windsor.
“That’s pretty unworkable for an employer in DC that has employees from Virginia, Maryland and DC,” Purintun said. Guidance from the Department of Health and Human Services will be necessary, he said.
Other important employee benefits and tax considerations await direction from the Internal Revenue Service. “We will move swiftly to provide revised guidance in the near future,” the agency said in a web post read by Purintun.
The tax issue arises because certain benefits provided by employers for members of the employee’s household are not taxable for spouses but are taxable for non-spouses, explained Howard L. Clemons of McLean.
“We view that as not urgent right now,” Clemons said, suggesting employers wait for more guidance.
Purintun said the IRS will have to decide whether to recognize marriages based on either the state where the marriage took place or where the couple resides.
He said a 1958 revenue ruling suggests the answer may be the “state of celebration” – where the wedding took place.
He said it would not make sense to have tax rules that say a couple can be considered married while they live in Washington, but not married if they move to Virginia.
“The taxes are different, and I don’t think the IRS wants people forum shopping,” Purintun said.
“My hunch is the IRS is going to go with a ‘state of celebration’ rule which would recognize anybody who was legally married in any state,” he said.
With the Windsor decision, Purintun said employers in the 13 states recognizing same-sex marriage can probably stop imputing income tax for benefits to same-sex partners, while employers in states like Virginia might be advised to wait to see what the IRS will say.
Another issue is payment of retirement benefits. Federal rules require a spouse to agree if the employee wants to designate benefits to someone other than the spouse.
Purintun says employers might be advised to drag their feet a bit on payment of benefits if there is any question about spousal consent, or get a same-sex partner to sign an agreement to cover the possibility the partner would be considered a spouse.
The advice was echoed by other lawyers. “We really are cautioning not to make any decisions too quickly,” said Traub.
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