Thursday, June 27, 2013

SCOTUS decision on DOMA affects Joint Bankruptcies

On June 26, 2013, the Supreme Court of the United States declared in United States v. Wilson, that section 3 of DOMA (the "defense of marriage act") is unconstitutional. Previously this section prevented federal agencies from treating same-sex marriages as marriages for benefits and tax purposes. This means that many federal spousal benefits (such as spousal benefits for federal workers) were not be available to same-sex spouses.

Additionally, for Federal tax returns, same-sex married couples could not file under married status. The ruling in Wilson changed all this and for federal purposes marriages valid in Massachusetts are now also recognized by the federal government.

Although it is administered at a state level and each state has the ability to specify its own procedural rules and an alternate exemption scheme, the Bankruptcy Court applies federal law. Since the Bankruptcy Code applies federal law, bankruptcy courts were required to follow the requirements of DOMA (the Defense of Marriage Act) and refuse to recognize joint bankruptcy filings by same-sex married couples.  Under DOMA section 3 the definition of marriage for federal law was limited to marriage between one man and one woman, thereby excluding same-sex marriages from federal recognition.

The Wilson decision now provides same-sex married couples the same bankruptcy benefits as all other married couples including:

  1. A married couple can petition for relief jointly. 
  2. Debts that are owned by either spouse individually, and/or by both spouses jointly can be discharged under one proceeding. 
  3. Both debtor-spouses proceed through the bankruptcy process together under the same case, meaning that all conferences and appearances are jointly held with both debtors, and both spouses can count on consistent relief from one bankruptcy court judge and one bankruptcy trustee. 
  4. There is a financial savings to filing jointly: Joint debtors pay only one filing fee for the petition (ranging from $274 to $1,049, depending on the chapter) and usually attorney’s charge less fees for one joint filing then they would for two separate individual filings.
  5. There is also a significant benefit to filing jointly because of how exemptions are calculated. Exemptions, i.e. the amount of property that cannot be taken to pay your debts, doubles for a joint filing, making it possible to protect more assets, regardless of which spouse owns the property.

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