Same-sex couples – Consequences of co-owning real estate in Indiana
In the May/June 2010 issue of the ABA’s Probate & Property publication, an article discusses the lack of legal benefits, protections, and recognitions experienced by same-sex couples compared to their opposite-sex married counterparts. In part, the differences are based on the so-called Defense of Marriage Act (“DOMA”) (1 U.S.C. Section 7, 28 U.S.C. Section 1738C). This federal statute has two components:
1. allowing states not to recognize same-sex marriages legally performed in other states; and,
2. allowing the federal government not to recognize any same-sex marriages, civil unions, or other relationship designations.
According to the article, the rights not enjoyed by same-sex couples are any of the 1,138 federal benefits of marriage (e.g., filing joint income tax returns, using the unlimited marital deduction for estate and gift taxes, enjoying benefits for employer-provided health insurance). While persons may agree or disagree with whether these distinctions ought to exist, it’s important for co-owners and prospective co-owners (regardless of sexual preference) who are not opposite-sex married couples to check with their legal counsel and/or tax preparer to avoid unintended consequences (such as taxation). But because of DOMA, there’s a special emphasis on same-sex couples, so let’s focus on that.
As of the end of 2010, six jurisdictions allowed same-sex marriages:
1. District of Columbia
5. New Hampshire
Note: because of legislation passed in New York on June 24, 2011, same-sex couples will be able to be married in New York in late July, 2011, although New York already recognized same-sex marriages and civil unions performed in other states.
Also as of the end of 2010, twelve jurisdictions allowed civil unions or domestic partnerships:
6. New Jersey
12. Rhode Island
Note: approximately 18,000 same-sex couples are legally married in California, but Proposition 8 in 2009 repealed performing same-sex marriages after its passage.
For information about various states’ procedures, see www.lambdalegal.org/states-regions.
Indiana does not permit same-sex marriages, civil unions, or domestic partnerships and does not recognize same-sex marriages, civil unions, or domestic partnerships created in other states. See IC 31-11-1-1 et seq.
Therefore, because of DOMA, whatever legal relationship has been validated in any of the above jurisdictions has no effect in Indiana or at national level. While the article covers impacts beyond real estate transactions and does not mention Indiana specifically, it highlights issues same-sex couples may run into. For example, before asking an attorney to prepare a deed from one same-sex partner (or any other non-married partner) to the other after a closing (because only one qualified for the mortgage loan, perhaps), the couple should first check with their tax preparer to be sure they understand the potential consequences. (No one needs to presume a gay relationship between the persons; the consequences apply regardless.)
Usually, attorneys and title companies inquire whether title is to be held as tenants in common or as joint tenants with rights of survivorship. This is all the more important in a same-sex couple relationship, because if the couple was married in, say, Massachusetts the couple may presume putting both their names on the deed in Indiana will mean the survivor inherits upon the other’s death. But in Indiana, for unrelated co-owners, the default ownership is tenants in common rather than joint tenants with survivorship or tenants by the entireties. (For opposite-sex married couples in Indiana, the default is tenants by the entireties.)
Likewise, adding a same-sex partner’s name to a deed can cause an unintended tax consequence. Signing the deed creates a gift of half the fair market value of the property as of the date the deed is signed. Similarly, if one partner is employed (and makes the mortgage payments) and the other is not, half the payment may be considered a taxable gift to the other partner. For various tax consequences, see http://escholarship.org/uc/item/25c0n9rx.
The potential tax and non-tax consequences of same-sex relationships go on and on (e.g., not being allowed as beneficiaries under retirement plans, not being eligible for dependent coverage under health insurance plans).
While title companies are not in a position to advise same-sex couples (in part because title companies don’t represent any parties to a transaction), persons dealing with same-sex couples early-on would be wise to let them know they may wish to look into the situation further. For example, it would be prudent for real estate agents representing same-sex buyers and for lenders working on mortgage loans for same-sex borrowers to suggest a consultation with legal counsel and tax advisors.
- Morrie Erickson