07/02/2013 12:51 pm ET Updated Sep 01, 2013

Demise of DOMA Brings Federal Benefits -- and Burdens -- to Same-Sex Married Couples

The Supreme Court's 5-4 decision in United States v. Windsor invalidated the Defense of Marriage Act because it violated Equal Protection by treating same-sex married couples differently than opposite-sex married couples. The benefits of DOMA's demise are both economic -- for example, Edie Windsor will get a tax refund of $363,053, plus interest -- and psychological -- the indignity of not being treated as married by your government will be gone. But all marriages have burdens as well as benefits, and that is equally true of same-sex marriages because they will now be recognized by the federal government.

Consider a moderately high level federal employee in a same-sex marriage who is subject to various federal ethics laws. Until now, when filling out the annual disclosure form, no information about the spouse's holdings had to be included because -- according to DOMA -- the couple was not legally married under all of the more than 1100 federal laws affecting married couples. Now if a same-sex spouse has stock or other property affected by decisions of the federal official, they will have to be disclosed. Until now, the laws forbidding federal officials from acting on a matter in which that person or the person's spouse had an economic interest did not apply to same-sex spouses because of DOMA. Now they do, as do the laws precluding nepotism in hiring for federal jobs, which now cover same-sex spouses, as well as certain of their family members. And judges in same-sex marriages will have to step aside from cases involving their spouse, just as those in opposite-sex marriages have always had to do.

It wasn't that Congress thought that same-sex married couples were more ethical that their opposite-sex colleagues. Rather, when Congress passed DOMA, it was so intent on making an anti-gay & anti-lesbian statement that it turned down suggestions to have the General Accounting Office study the impact of the law, either before or after enactment. Of course, many same-sex married couples followed these ethics laws, even if not legally required to do so, because that was the ethical thing to do, and nothing in DOMA made it illegal for same-sex married couples to comply with them.

Tax is another area where marriage matters. The federal income tax code is an extraordinarily complicated document, so that the question of whether it is better to be married than not is, "it depends." The code gives married couples a choice of filing their income tax returns either jointly or separately, and that option, which Congress deliberately created, can be very valuable to some couples. That choice is now open to same-sex married couples, not only for the future, but, if it will save them money, they can file an amended return within three years of filing the original one.

But the tax laws also have provisions designed to prevent tax avoidance schemes, some of which are specifically directed at married couples. One of those, that potentially affects a large number of same-sex married couples, typically involves only modest amounts of taxes, but a large number of taxpayers. Congress has not only allowed married couples to choose whether to file jointly or separately, but it has given all taxpayers the choice of taking itemized deductions or using a standard deduction -- with one exception, married couples. Without the exception, a couple with one person as the predominate bread-winner could allocate all deductions to that person, and then have the other one take the standard deduction -- which is intended as a simplified substitute for itemized deductions for those who don't keep records or have relatively few expenses to itemize. That kind of doubling up on deductions was available as an unintended benefit to same-sex married couples until DOMA was overturned.

Another tax avoidance scheme that Congress outlawed was having a married person sell stock or other property at a loss to the spouse, to reduce the couple's taxes, but without reducing their economic wealth. Until last week, same-sex married couples could use that device, but no more. A similar provision that treats transfers between married couples incident to a divorce as non-taxable events now applies equally to same and opposite-sex couples. Whether that is good for one or both of a divorcing same-sex couple will depend on many circumstances, and thus illustrates the proposition that being married has both benefits and burdens under the tax laws, and that it is hard to tell which way they will fall without knowing more about the couple's financial situation.

There is one tax provision that almost certainly does not attract accountants and lawyers to assist with tax planning, but does show that some married same-sex couples will not benefit under the tax laws from DOMA's demise. The earned income tax credit is a program designed to assist low income workers by making payments to them from the Treasury based on their income, family size, and certain other criteria. The law requires the person seeking to use the credit to take into account the income of the person's spouse, which under DOMA did not include a same-sex married spouse. The result was that a same-sex married couple that was identically situated to an opposite-sex married couple in all relevant respects would get more money from the Treasury than would the opposite-sex couple. The one thing we can be sure about the goals of the DOMA sponsors: it was not to treat low income same-sex married couples better than their opposite-sex equivalents.

Similar kinds of perverse benefits for same-sex married couples under the bankruptcy laws will also end with the end of DOMA. For example, in setting up payment schedules for re-payment plans, the incomes of both members of a same-sex marriage will have to be taken into account in determining what they can afford to pay back to their creditors, which almost always includes Uncle Sam. And when a same-sex couple files for straight bankruptcy, they will have to follow the same rules on electing exclusions that opposite-sex couples do, instead of being able to manipulate the process to their advantage and to their disadvantage of their creditors. Because of all these ins and outs caused by DOMA, it was hardly surprising that when the Congressional Budget Office did a study of its impact in 2004, it concluded that DOMA would, if same-sex marriages were allowed in all States, cost the Treasury over $2 billion per year.

It is quite unlikely that most same-sex couples who are contemplating marriage will do a cost-benefit analysis to decide whether "marriage" is worth it, any more than do most opposite-sex couples in the same position. Marriage is about much more than dollars and cents, although gaining access to a spouse's health insurance is likely to be a major plus, even if the other pluses and minuses are disregarded. But once the decision to marry has been made, same-sex couples will have to keep an eye out for both the burdens and benefits under the many federal and state law laws applicable to married couples.

One final thought: Why should federal laws applicable to married couples not included couples who have registered domestic partnerships or civil unions? Many laws, including the federal tax code, recognize common law marriages, and there is not even a piece of paper or an official file to establish their validity. Why, once a couple has signed on the dotted line, shouldn't they be treated like married couples, with all the benefits and burdens attached to that status? And if we had such a system, at least the federal government would not care whether the couple was married under state law or not.