Wednesday, November 5, 2008

The Future of Same Sex Couple Planning (married or not)

Yesterday, California voters passed Proposition 8, which amends the California Constitution to limit marriage to a union between a man and a woman. What does this mean going forward? Here are some observations:

All Previous Same-Sex Marriages Are Still Valid

All same-sex weddings performed between the California Supreme Court's decision in In re Marriage Cases (2008) 43 Cal. 4th 757, on May 15, 2008, and midnight, November 3, 2008 will remain valid. California Attorney General Jerry Brown said yesterday that, because Proposition 8 was not retroactive, it will not apply to same-sex couples who got married in California before Election Day. Attorney General Brown also said that the State of California would defend the validity of the marriages if they are challenged.

Estate Planning is Unchanged

As I have previously posted, most estate planning tools are developed to deal with federal law, particularly federal tax law. The federal Defense of Marriage Act (or DOMA, 1 USC sec. 7) was passed by Congress in 1996 and essentially prohibits the federal government from recognizing same-sex marriage. This means that even legally married same-sex couples cannot take advantage of federal tax laws including unlimited tax-free transfers between spouses, joint filing of tax returns, etc.

From an estate planning prospective, this means that, legal same sex marriage or not, special estate planning is needed for same-sex couples to get around the restrictions of DOMA.

Registered Domestic Partnerships are Unaffected

The text of the amendment, which is only one sentence long, refers only to marriage. Same-sex couples can still register as domestic partners in California. Under California law, registered domestic partners are given all the same rights and duties (including community property and California tax filing) as married couples.


Legally, at least, life goes on pretty much as it did before. Symbolically, it's quite a different story.

Monday, November 3, 2008

Keep Those Beneficiary Designations Updated!

I have been doing some research on Federal preemption of California community property law by ERISA. If you are still awake after reading that, you'll love what's next:

In Emard v. Hughes Aircraft the Federal Ninth Circuit Court of Appeals held that ERISA law does not preempt California community property law. While that might not move you to dance in the streets with joy, consider the facts of the case. Wife married Husband 1 in 1975 and named him as the beneficiary of the life insurance policy she received from her job at Hughes Aircraft in 1981. Wife and Husband 1 divorced in 1985. Wife then married Husband 2 in 1986. She never changed her beneficiary designation even though she purchased additional insurance through Hughes while she was married to Husband 2 (that means Husband 1 was the named beneficiary on the new policy as well). Wife died in 1995 without an estate plan. Husband 2 sued Husband 1, among others, to get the benefits of the life insurance policy she purchased while married to Husband 2.

This case is significant not because of the issue of federal ERISA preemption, but because it shows what a mess can be created if you do not keep your beneficiary designations current. Think of how much in attorneys fees were generated in suing for the benefits, losing, and then appealing.

Remember: you should review your designations every year, and certainly when you get married, divorced, widowed, or when you have children. This is probably not the first thing on your mind when these events occur, but the consequences of ignoring it can be pretty serious.