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.

Chipping Away at the Defense of Marriage Act: Is a Joint Petition for Bankruptcy on the Way in Massachusetts for Same-Sex Married Couples?

UPDATE: 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.  Read our analysis of what this changes: SCOTUS decision on DOMA affects Joint Bankruptcies

ORIGINAL POST:

The Defense of Marriage Act (DOMA) dictates how federal law treats same-sex marriages, by defining marriage as between one man and one woman. DOMA does not forbid states from allowing same-sex couples from marrying, but does limit same-sex married couples from accessing the same federal benefits afforded their opposite-sex counterparts.

There are over eleven hundred federal statutory provisions in which marital status is a factor in determining or receiving benefits from the federal government.  For example, DOMA prohibits a same-sex married couple from filing a joint federal income tax return.

In the field of bankruptcy, DOMA not only forbids a same-sex married couple from filing a joint petition (thereby saving hundreds of dollars in filing fees, as well as losing some of the ease of joint financial planning by dealing with joint debts together), but it also prevents a spouse's or former spouse's claim against the petitioner from being given priority (basically, a debt held by a spouse or former spouse in an opposite-sex marriage is treated as a more important creditor to be paid off, where a same-sex spouse or former spouse is treated as a less-important creditor to be paid off).

In California, a same-sex married couple tried to file a joint Chapter 13 petition for bankruptcy. When the bankruptcy trustee moved to dismiss their petition because of their marriage, they appealed, and the Bankruptcy Court for the Central Division of California ruled that denying the couples' petition violated their equal protection rights guaranteed by the Fifth Amendment. Interestingly, the opinion was signed by twenty of the twenty-four judges in the Central District of California, although the case was heard only by Judge Thomas B. Donovan, sending the message that the bankruptcy judges in the Central District of California believe (well, most of them at least) that the application of DOMA to prevent a same-sex couple from filing for bankruptcy is unconstitutional.

This does not mean that other states will have to follow suit. However, a case in New York was decided along the same lines, and one can only assume that other states will begin to address the issue. Massachusetts has not yet dealt specifically with the issue of same-sex married couples filing a joint petition for bankruptcy, although two separate cases in Massachusetts federal court have ruled that DOMA is unconstitutional.

Kelsey & Trask, P.C. understands that not everyone wants to be a constitutional test case, and for some, operating within the restraints of the law, no matter how unfair, is better in the short term than changing the legal thinking of an entire system. We recognize the limitations and restrictions presented by DOMA. While we cannot extend all benefits of a joint filing, we do recognize and support the same-sex community.

If you need assistance in the bankruptcy court, we will not charge you as separate clients; rather, we will charge the same fee as we would any married couple. We will also do our best to ensure your cases are presented to the same trustee, and remain in front of the same Judge, by filing them simultaneously (giving them the best chance to be in front of the same trustee and Judge).

Joint filings were created in order to protect the family unit and allow for collective financial planning. While federal law currently chooses to deny same-sex married couples from such federal benefits, we have chosen to treat same-sex married couples with the same dignity and treatment as their heterosexual counterparts. It is not a perfect solution, but if it helps your family to get a fresh start, we don’t want you to go alone.