Michael Hamar

Gay Or Straight, Marriage Matters -- For Taxes

Filed By Michael Hamar | August 19, 2010 8:30 AM | comments

Filed in: Living, Marriage Equality, Politics
Tags: estate planning, gay marriage, Income Taxes, inequality under the law, religious based discrimination, tax

I have had to educate a number of political candidates on the issue of why the word "marriage" means so much to LGBT Americans. In fact, the issue came up last night at the Norfolk Democratic Party Committee meeting I attended.

Explaining the reason why marriage matters is not just because civil unions are a framework of "separate and unequal" - of course, here in Virginia, we don't even get that right to be unequal. No, where the rubber hits the road comes from the fact that so many laws, especially tax laws, use the word "marriage" in dispensing benefits and rights. In terms of taxes, not being able to marry causes LGBT citizens to pay more in income taxes - even though we receive fewer civil rights - and more in the estate tax realm as well.

Rubbing salt into the wound is the fact that same sex couples are punished solely because they do not live their lives per the Christianists' religious beliefs. Robert Woods, a tax attorney (pictured above), has a piece in Forbes that looks at this reality and why marriage matters in terms of hard dollars and cents. Here are highlights:

It may sound myopic, but as a tax lawyer for 30 years, I tend to think of taxes first in all things. Even marriage. The gay marriage debate raises big issues, but I find taxes at the front and center of them. As a number of states and the IRS move to address marriage tax issues, you might think the main issue would be whether same-sex couples can file joint tax returns.

Yet marriage has a whole host of tax issues, in addition to joint filing. Some of these issues can make the denial of joint filing look like small potatoes.
In fact, the biggest tax issues often come up on the unraveling of a marriage. Whether a couple is heterosexual or gay, the tax aspects of unraveling a relationship are very different inside and outside marriage. You might be shocked how these tax rules work.

If you're married, there's no limit on the amount of money or property you can transfer back and forth between spouses. There's no gift tax and no limit (except in those instances where the spouse getting the assets isn't a U.S. citizen). If you're not married, you are limited to $13,000 per year tax free. Any gifts beyond that trigger an immediate gift tax or eat into your lifetime gift-tax exemption of $1 million. If you use the gift tax exemption it reduces, dollar for dollar, the amount you can pass on estate tax free to heirs at your death, and most people prefer saving the exemption for their estates. (While the estate tax has lapsed for 2010, under current law the estate tax exemption will be just $1 million come Jan. 1, 2011.

A divorcing couple can divvy up property tax free. Again, there's no limit. So if you jointly bought a house, you can transfer your interest to your ex without tax. Not married? In that case, you'll likely face income or gift taxes. If you give your half of the house to your ex-partner and receive nothing in exchange, you've made a taxable gift.

Suppose you're not feeling that generous and instead are deeding your half of the house to your ex in exchange for some of your ex-partner's stock holdings? Then you both could be hit with income taxes.

If you look at a many-year relationship with significant assets, the taxes at stake can be enormous. In fact, the tax bill can be so big that in some cases, unmarried couples trying to untangle joint assets might consider getting married just so they can then qualify for the benefits of a tax free divorce! . . . .Of course, gay couples can only do this where marriage is permitted, since the tax law requires a valid marriage--even if it is a sham marriage for purposes of qualifying for a tax-free divorce.

Despite my focus on tax law, I realize the non-tax aspects of marriage are considerably more important than the tax aspects. Nevertheless, as you can see, taxes matter a great deal, especially if you have to unwind a relationship.


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Isn't it funny how some people can ignore the "pull at the heartstrings" arguments but fall right over for "would you want them in YOUR pocketbook like this?" Hence the success of the Tea Party, eh?

Seriously, we need gay divorce more than we need gay marriage.