What Really is “Fair” in PreNup Negotiations?

I’ve been drafting a fair number of premarital agreements in the past few months, now that same-sex couples can marry in California and, most significantly, now that gay and lesbian married couples receive federal benefits.  Negotiating these agreements is rarely simple, as the discussions raise deep issues about the underlying structure of the relationship – and each party’s notion of what is fair from a financial standpoint.  As is legally required, the discussion always begins with a review of what marital law would impose on the couple in the absence of an agreement, and this is usually rather surprising news to most couples.  For those that have already been together for some time, they discover that assets acquired so far are not merged upon marriage – they remain separate property under California law.   For many couples this information forces them to re-evaluate how they have organized their financial lives so far – and oftentimes one of the partners feels that there should be some retroactive sharing of what has been accumulated so far.  These discussions frequently devolve into painful explorations of who was successful and who wasn’t, and what sort of wise (or unwise) financial decisions have been made.

The next phase of the conversation focuses on what the law would do about post-marital assets – which are generally shared equally regardless of who earns them.  Some couples are quite comfortable with this kind of forced sharing, whereas others don’t feel it’s fair to adopt these rules.  This is especially true where each of them has clearly made choices independent of the relationship – choices about education, career, or ambition – such that sharing the benefits doesn’t feel right.  For other couples there are external factors, such as a prospective inheritance or the need to care for an elderly parent, which they feel should be taken into consideration.  Oftentimes the higher earner feels it should suffice that he or she is supporting his or her partner while they are living together, but that splitting savings is excessive.  Interestingly, the lower earner often is uncomfortable even asking for a sharing of assets, either because he or she has never felt that a partner would be taking care of him or her, or perhaps because he or she fears that asking for this sort of sharing will trigger a hostile reaction from his or her spouse.

As difficult as these issues are to resolve, the hardest nut to crack involves spousal support.  The law in most states says that if one spouse is earning less than the other one at the time of a dissolution, the higher earner can be required to pay spousal support for some period of time, often about half the duration of the marriage.  There are various theories behind this concept: for some it’s a way to help the lower earner “move on” in life, for others it reflects the belief that the higher earner has benefited from the love and support of a spouse during the marriage.  But to many lesbians and gay men, the notion of supporting an ex-lover seems absurd – they should be grateful for the support they received during the marriage!

What’s interesting to me is to see how differently couples handle these challenging topics.  I’ve observed some couples be entirely practical, and reach compromises quickly that address both partner’s concerns and reach a reasonable middle path.  For other couples – even when there’s not a huge amount of money at stake – the feelings are tender and the rifts seem impossible to heal.  One of them might feel offended that the other expects to be supported, while sometimes the lower earner feels unduly blamed for their difficult financial situation.  It’s easier to resolve the issues when one partner is earning less because he or she is taking care of the kids, or if one partner has sufficient income and assets to easily support both partners.  It gets more difficult if the “richer” one doesn’t feel very secure financially, or where the lower earner has made voluntary choices that resulted in the financial difficulties.

The good news is that most of my clients find their way through these thickets, and reach an agreement and go on to celebrate their marriage. Others, however, decide that marriage just isn’t the right legal framework for them, at least not yet, and they are able to stay together as a couple and defer the wedding, perhaps forever.  Unfortunately, there are couples whose relationship doesn’t survive the prenup negotiation process.  For them, asking these hard questions reveals deep differences in feelings and goals, and forces them to reconsider their plans, resulting in a breakup of the relationship.  It’s painful when this happens, though I’m convinced that this was an inevitable outcome, sooner or later.

And what have I learned about how to approach these questions most effectively?  The first place to start is to be honest about one’s own needs and feelings.  Do you regret the choices you have made so far, and do you feel you have the ability to turn your life in a new direction?  Are you disappointed in what you received, either positive or negative, from your parents and your childhood?  What are your long term financial needs, and how do they differ from that of your partner?  The next step is to be truly open to understanding your partner’s attitudes about money and financial security, even where the feelings might be threatening to you.  As seasoned negotiators always remind us, you can’t build a bridge until you know where the other side of the river is located.  And then, in the end, the two of you need to find a way to build an arrangement that is supportive of both partner’s goals and needs, and brings you closer together as you form your legal relationship.  Forging your financial partnership – or agreeing to maintain separate financial identities even while married – is an important dimension to creating intimacy.  Not as much fun as making love, for sure, but in some ways equally important when it comes to nurturing your long term relationship.

The Latest News from Utah

Given its early history advocating for polygamous marriage – something that had to be given up as a condition for statehood – Utah’s fervent rejection of marriage equality for lesbian and gay couples is particularly ironic.  In the latest development, a brave Federal judge has ruled that Utah’s ban on same-sex marriage is unconstitutional.  To the surprise of most of us, neither the judge nor the 10th Circuit Court of Appeal stayed the implementation of this ruling, and so approximately 1,000 same-sex couples married in Utah within a few days of the Court’s decision.  Then, just recently, the United States Supreme Court issued a ruling, preventing any further marriages from taking place.

The question now is what happens to the couples that got married before the Supreme Court’s ruling took effect.  Contrary to the opinion of most legal analysts, the Utah state officials have stated that the marriages are not valid and will not be recognized.  This does not seem to be the right decision: the Supreme Court has not overruled the trial court’s decision, and so for now, the marriages were validly entered into and should be recognized.  Most likely there will be challenges to the state official’s position – especially if there is a break-up or death in one of the married couple’s lives before the final court ruling is issued.

Meanwhile, the federal government has announced that it will do the right thing and recognize these marriages for federal purposes. As a result of this ruling, the couples married in Utah will receive immigration and tax benefits, as well as Social Security and other federal program benefits.   This decision is parallel to the recent ruling by most federal agencies that they will follow the “state of celebration” rules, and extend benefits to couples who are validly married, even if they reside in non-recognition states.

The Utah situation is actually a new wrinkle in this fabric of legal complexity.  The federal recognition of valid marriages stands on solid ground.  For example, if a Pennsylvania couple travels to New York city and gets married there, there is no question as to the validity of the marriage – and so the feds should recognize it.  Here, the issue is not just one of Utah’s refusal to recognize the marriages – they may one day be found to be retroactively invalid, depending on how the appeals courts rule on the merits of the appeal.  Still, we think the federal agencies are doing the right thing, both legally and politically.  It’s important that the federal agencies send a clear message to state administrators and to the married couples, that the federal government will recognize their marriages as valid.  

We applaud the advocates in Utah who are pursuing this worthy challenge, and we celebrate the couples who are willing to endure the legal complexity to move the marriage equality campaign forward. 

 

Emerging Issues in Same-Sex Dissolutions

I’m giving a series of talks in the coming month about the emerging issues arising in same-sex dissolutions, and the issues are indeed complicated.  For some couples, there are messy legal issues.  Many couples have been together for a long time, but only state-registered or married for a few years.  For those couples the legal rules treat their pre-marital period as an unmarried couple, even if they (or one of them!) thought of themselves as married.  How should money and property be divided up if it was accumulated during that period of time?  The one with the assets will typically say “We weren’t married so it’s all mine,” whereas the other one will claim they were “like a married couple” from the start – and should be treated as such.  

The other legal issue is that of the couple that chose to be unmarried or unregistered — but one of them now regrets that choice.  It may be that they really didn’t think about the consequences, and now, one of the partners is going to be handicapped as a result.  True, California law allows unmarried partners to make financial and property claims, but these are hard to win.  Many folks – including me- believe that there may be compelling moral or practical justifications for sharing assets at the time of a dissolution, even if the law doesn’t compel this result – but figuring out what is fair is never easy.

The next level of problems are those that arise when the legal rules are in direct conflict with how the couple -or one of the spouses – thinks is fair.  Many gay and lesbian couples registered or married as an act of civil protest, or simply to gain insurance benefits.  They really weren’t thinking about the long term financial consequences – and unlike many straight couples, they may not have realized that their marriage or registration would pull them into the marital law system.  Sure, these same problems arise in straight divorces, but my sense is that the gap between the legal rules (based primarily on customs of traditional heterosexual marriage) is greater in our community.

Lastly, there are the more elusive dynamics on the emotional front.  Many in our community are alienated from our families of origin, and many gays and lesbians had difficult childhoods.  These emotional backgrounds can surface in a dissolution, where the real problems of financial strain and emotional vulnerability trigger these long-standing wounds.  Winning the right to marry doesn’t really help all that much if you are in the midst of a divorce – making the dissolution process even more difficult.

There are no easy answers, but there are a few insights that can help.  First, we all need to recognize that the legal system is not a perfect system, especially for us.  The rules are unclear and constantly changing, the judges are not used to our lives, and the legal advocates are themselves often confused and uncomfortable.  Second, we need to acknowledge that each partner experiences her or his own reality, and there is no single “truth” about the past – especially in love relationships.  Third, keep your eyes on the goal — which is to resolve disputes with a minimum of cost and aggravation, and a minimum of pain to each party.  Be willing to admit uncertainty and reach a compromise on the disputed issues – rather than seeing the divorce as the last change to take revenge on the person you formerly loved.  I can assure you that you will feel better in the long run! 

The I.R.S. Makes Same-Sex Divorce A Bit Easier – for Some Couples

The IRS recently issued the guidelines we have been waiting for since the U.S. Supreme Court invalidated the Defense of Marriage Act.  The tax rules affect all married same-sex couples – while their relationship is intact, but also when things go asunder.  For those in intact marriages, some of the couples will enjoy benefits, whereas others will face higher taxes, due to the “marriage penalty.”

But as those who have been through a divorce recently have learned, one of the ironic burdens of DOMA was the lack of the tax protections that straight couples have always received upon divorce.  The “benefits” came in the form of being able to transfer assets and pay (and receive!) alimony without having to pay tax on those transfers.  The burden of double taxation was especially unfair, since these spouses had already paid their full share of taxes when the money was earned.   Now, thanks to the demise of DOMA, same-sex divorcing couples will enjoy the same freedom to transfer assets that straight divorcees have always had.  Splitting up a bank account, transfering ownership of a house, or paying spousal support (aka alimony or maintenance) can all be done in whatever arrangement the couple agrees to, without worrying about having to pay additional taxes on these payments.

Once DOMA was invalidated we knew that same-sex married spouses in recognition states would be exempt from taxation on these transfers.  However, there were two classes of couples whose fate was uncertain: those living in non-recognition states, and those who have marriage equivalent registrations, such as domestic partnerships (in CA) or civil union (in New Jersey).    The IRS said yes to the coverage for those in non-recognition states, but said no when it comes to those in marriage-equivalent registrations.

Here’s what this means.  If you are living in a non-recognition state (i.e. a state that doesn’t honor your marriage) and you are breaking up, and you are dividing up assets or helping each other out financially, you won’t owe any federal taxes.  Thus, even if your state doesn’t recognize your marriage, and even if you have to travel to another state to get divorced, at least the federal tax authorities won’t burden you with additional taxes.

But for marriage-equivalent registrants, there are still tax problems.  Under state law you may have to pay alimony or give some of your investment account to your ex – because those are some of the duties of being in a marriage-equivalent partnership.  But because the feds don’t recognize you as “spouses” you don’t the spousal tax privileges.  You will be faced with the same tax burdens – and tax uncertainties – that those in same-sex partnerships have faced for the past eight years.

We think this is unfair.  If the state considers you married, then the feds should fully recognize that status – even if it is called domestic partnership or civil union in your state.  Eventually, this problem will go away – in part because many of the states that now offer marriage are “upgrading” the registered partners into marriage.  Also, if your relationship is still intact, and you are worried about future tax problems, you can get married now – and then if you later divorce you will have all the tax protections as a divorcing spouse.  And finally, there are legal advocates working to persuade the IRS to loosen up these rules, and include divorcing domestic partners or civil union registrants into the scope of the tax exemption.

This is definitely complicated – and if you are going through a break-up and significant assets are involved, we urge you to consult with a tax expert who knows the rules for your particular state.

The Impact of the Supreme Court’s Big Decisions

Yesterday the United States Supreme Court removed the most important barrier to marriage equality in this country: invalidating that section of the Defense of Marriage Act which prevented the federal government from recognizing valid same-sex marriages.  In a sweeping decision that honored the liberty and equal protection rights of lesbians and gay men, the Court ruled that when a couple has a valid state marriage, the federal government must extend all of its benefits to that couple.  For many couples the federal benefits are the most important aspects of being married – including the immigration protections for bi-national couples, the Social Security benefits upon divorce or death, and the federal tax exemptions afforded to married spouses.  This ruling also clears the way for same-sex couples to transfer assets tax-free upon marriage or divorce, including retirement accounts, and provides insurance and other benefits for the spouses of federal employees.  It’s a momentous change for our community, extending the legitimacy, protection and respect from the federal government that we have long deserved.  And perhaps on a most symbolic level, it removes the scourge of a bigoted law passed in 1996, without having to endure a congressional repeal fight.  

The Court also rejected the appeal of the decision invalidating Proposition 8, which banned same-sex couples from marrying in California.  While the Court dodged a substantive ruling and relied on the appellant’s lack of legal standing to toss out the appeal, the end result is that marriages will resume in California within a month or so.  

There are still two important areas of uncertainty for many couples, however.  There are tens of thousands of couples in a marriage-equivalent partnership, either domestic partnership or civil union, in eight states, and we don’t know which (if any) of the federal benefits will be extended to those couples. Each federal benefit has its own legal framework, and it may take several years to work out these details.  If having a federal benefits is crucial for you, it may be advisable to get married, even if you are already state-registered.  That way you don’t have to worry about being a test case!  

The other area of great uncertainty involves couples that have a valid marriage, but live in a state that doesn’t recognize their marriage.  The Court’s decision on DOMA only dealt with the situation where the couple’s marriage was recognized by their home state, and it didn’t address the fate of couples living in non-recognition states.  Most federal laws look to the state of residence, not where the marriage was entered into.  Thus, if you live in a non-recognition state you will need to inquire as to the particular rules applicable for the benefit you are seeking.  If receiving the benefit is crucial and you don’t want to wait out the legal fight that will ensue over this issue, you may need to relocate to a recognition state.

One hopes that the strong language of the Court’s decision on the DOMA appeal, as well as the emerging social acceptance of marriage for same-sex couples, will lead to the repeal or invalidation of the DOMA laws in existence in more than 30 states.   This will eliminate the problems that exist for couples in those states, and will ensure marriage equality for all couples, wherever they reside.

One last word — remember that the right to marry is not the duty to marry.  Each couple needs to make their own decisions about whether marriage is right for them, legally, financially, and emotionally.  Marriage includes significant financial obligations, for shared debts, shared assets, and possible spousal support upon dissolution.  It also requires a judicial dissolution if things don’t work out, which can be difficult and expensive.  We all should celebrate the legal and political victories of this wonderful day – but don’t let the euphoria obscure the more complicated personal questions about what is best for you and your partner!

10 Reasons to Get Married — in France

I recently spent some time in France, coinciding with the passage of the same-sex marriage law there.  I happened to be reading the latest issue of Tetu, the glossy gay French magazine, and there was an article titled “Ten Good Reasons to Get Married – or not!” and I thought it was interesting to see how folks there think about this decision.   Here’s a summary of the reasons, pro and con:

1.  Marriage offers many legal protections, beyond what non-marital cohabitation or civil union offers; however, the benefits only accrue upon divorce or death — and who wants to get divorced or die?

2.  Getting married can revitalize your relationship in a positive way – but don’t count on it saving a troubled partnership.

3.  Getting married brings gifts – but that really isn’t a good reason to imitate straight couples.

4.  Geting married greatly simplifies the process of both partners becoming legal parents – but it’s not a simple process.

5.  It’s a great excuse to have a party, but be careful – bringing all your relatives together could be a social disaster.

6.  Getting married should save you money, particularly in taxes, but it also can be expensive if you end up getting divorced.

7.  Getting married bestows social legitimacy on the couple – but it also can import the heteronormative rules (such as fidelity) in ways that are restrictive to the couple.

8.  Marriage is likely to “tame” your libido – but one wonders what that would really mean for homosexuals!

9. Your parents will certainly be pleased to see you get married – but do you really want to base your decisions on what makes your mother happy?

10.  Marriage makes most assets “community” in ownership, to be shared upon dissolution  – which can be beneficial to at least one partner  – but it also can be a “cost” that arises if the couple breaks up. 

Proposition 8 at the Supreme Court

Today’s hearing at the United States Supreme Court on the validity of Proposition 8 was quite fascinating both from a substantive and historic perspective.    Substantively, the key issues were standing, and the breadth of the claims made by the parties.  The standing issue focuses on whether the proponents of the anti-gay-marriage initiative have the right to bring this appeal to the court, where the State of California officials refused to do so.  Most of the justices seemed genuinely critical of extending appeal rights to the proponents, given that they do not truly represent the state’s interest.  There was discussion of the various options the state might have, including naming an independent party to challenge the lower court’s ruling, but this didn’t make much sense to the other justices.

On the merits, the discussion mostly focused on whether this could really be a California-onlly ruling – on the grounds that once the State Supreme Court had extended marriage rights to same-sex couples, it was wrong for the voters to take those rights away – or whether they needed to rule on the broad right of same-sex couples to marry everywhere.  It seemed absurd to some of the justices, and rightly so, that states that offered no rights (neither domestic partnership or some kind of constitutional protection) would be left alone, while those states that had gone most of the way to protect same-sex couples, such as California, would be more heavily scrutinized.

From a historical perspective, what is most important was listening to the complexity of the arguments, the sincerity of the claims and responses, and the realities of same-sex couples being discussed at such a high level.  Even the proponents of Proposition 8 did not really argue against same-sex couples having marital rights; rather, they emphasized their assertion that it would be premature for the courts to intervene, preferring instead to let the political process work this out.

But perhaps most surprising was the comment by Justice Kennedy, asking whether it was possibly wrong for the court to have taken on this case in the first place.  Were his suggestion to gather support, the Court could simply say “sorry, never mind” and let the 9th Circuit’s positive ruling stand.  Should this be the outcome – or perhaps more likely, a refusal to rule on the merits based upon the standing question – marriages would be allowed once again in California, leaving the bigger constitutional questions unanswered for years to come.

Today’s arguments on Proposition 8

Today’s arguments on Proposition 8

Here is an excellent analysis by Nancy Polikoff — complete with insightful arguments about the “what’s good for the children’ arguments raised at the hearing today.

Recent Court of Appeals Case on California Domestic Partnerships

Here is my recent blog for CEB on the Wilson Estate case — explaining what happens when a couple state-registers as domestic partners, then marries, and then one of them dies in the middle of their break-up.

http://blog.ceb.com/2013/01/25/the-complications-of-same-sex-marriage-in-a-time-of-changing-options/

 

Access to Canadian Divorce Courts

As has been noted elsewhere, one of the biggest problems facing same-sex married couples is access to divorce, if they live in a non-recognition state.  Most places don’t require residency in order to get married, but they do require some duration of residency to get divorced.  There’s a long history behind this rule, called the domicile rule, having to do with preventing angry spouses from fleeing across state lines to avoid the financial burdens imposed by their state of residence. But these rules never anticipated the current situation, where a couple can be legally married in one state, but not be recognized as married in their home state.

California recently enacted a law allowing couples that married in California to come back here for a divorce, even if they live elsewhere, if their home state won’t grant them a divorce there.  A similar law has been proposed in Canada, but has not yet enacted.  The Canada situation raises some interesting challenges and questions about the complex situation now facing same-sex married couples.

First, the law would confirm that the marriages entered into in Canada are in fact valid, even if the couple lived in a state that didn’t allow same-sex couples to marry.  This was seen as necessary by some, because a government lawyer had previously asserted that the marriages were not valid if the spouses lived in a non-recognition state.  That would indeed be confusing: consider what would happen to a couple from Arizona who went to Canada to get married, and then moved to California.  California would ordinarily recognize their marriage, but if it wasn’t valid in the first place, that would create a serious problem.  This legislation would solve that problem.

Second, it appears that the legislation would only grant a “status” divorce, allowing the couples to dissolve their marriage, but would not be allowed to issue orders regarding child or spousal support, and probably not about financial or property claims either.  This is a good thing, as it would probably not be fair to extend substantive Canadian marital law to a couple that had never lived there.  But what should the couple do if they have legal conflicts over money and property?  They would still be left with no court to go to.  That can be a real problem for some couples, but better to have this legislation in effect than not.

Lastly, the proposed legislation imposes some rather steep thresholds in order to obtain a divorce.  Unless both spouses join in the request, the petitioner is supposed to get an order from his or her local court affirming that the other spouse is unwilling or unable to join in the petition.  It isn’t at all clear how a spouse would get such an order, if they live in a state that doesn’t recognize their marriage in the first place.  And, a year of separation would be required before a same-sex divorce could be granted – a requirement that is not imposed on straight divorces.  

No telling when or even if the Canadian parliament will pass the proposed legislation, but it’s good to hear that they are thinking about the problem.  Of course, if every state in the United States started recognizing same-sex marriages, this problem would disappear.  Until then, however, same-sex couples may remain “wedlocked” for some time to come.