Same-sex Divorce and the Challenge to Undo

If you thought same-sex marriage was a challenge, wait until you hear about the same-sex divorce conundrum. Ending the marriage that was difficult to get done in the first place ends up being far more complicated. As this is writing, the effectiveness of the pro-gay movement sympathetic to same-sex couples marrying or divorcing seems to be mixed and uncertain.

For same-sex couples that use the words until death do us part as a portion of their marriage vows, it becomes almost literal if or when the marriage sours and they wish to divorce. In most cases, unless the couple moves to a state that recognizes same-sex marriage and establishes residency (most commonly 6 months to a year), they cannot get divorced legally.

The greatest challenge for these couples is finding a state that recognizes same-sex marriage, traveling to that state to marry, returning to the home state to live, and then, if divorce results, not being able to file for divorce in their state, and rather, needing to relocate and establish residency in a state that recognizes same-sex marriage. For nearly everyone, moving to another state just to establish residency is just not practical.

Challenges to overcome:

In a heterosexual relationship that ends in divorce, a judge may order a pension or retirement account to be divided, and laws (including QDRO) allow the division without triggering taxes or early withdrawal penalties. For divorcing gay couples, any court-ordered division of these accounts aren’t protected and do trigger taxes and penalties.

If real property is exchanged in a heterosexual divorce, capital gains taxes can be avoided. In same-sex divorces, there is no protection, and taxes are owed if due.

If cash is exchanged between a divorcing heterosexual couple and is the result of a divorce settlement, they enjoy the shelter of passing unlimited funds between them without taxes. Gay couples are not protected, and are exposed to taxes (in particular gift taxes) when couples exchange more than $12,000.00 in any one year.

In cases where alimony is awarded, tax law for heterosexual couples divorcing provides that the payer gets a tax deduction for alimony paid and the receiver musy declare the income on their taxes. For same-sex couples, no tax deduction exists, and if the payment of money exceeds $12,000 per year, gift taxes apply.