Tax Laws Pose Special Problems for Divorcing Gay Couples
Lawyers are finding creative solutions to tax obstacles faced by divorcing gay couples.
Retirement savings and pension plans are easily divided when heterosexual couples divorce. But for gay couples, the savings plans may have to be cashed out and heavily taxed, the Washington Post reports. Under current law, only $12,000 can be transferred from one gay spouse to another without being subject to a gift tax.
Divorce lawyer David Eppley told the Post that in a gay divorce, “Uncle Sam” becomes a third party.
“Federal law looks at gay divorcees as strangers,” he said. “Bob can’t transfer property to Steve without it counting as a taxable transfer, whether in capital gains or a gift and potentially both.”
The tax code also does not permit a deduction for alimony payments made by a divorcing gay spouse, while such a deduction is permitted for a heterosexual spouse. The deduction can be an incentive for larger payments, so a divorcing heterosexual spouse may get more alimony than a divorcing gay spouse.
Lawyers are dealing with some of the tax problems by swapping assets, setting up irrevocable trusts and requiring payments to be made over several years so they fall below the gift tax threshold, the story says.
In the case of a man identified only a Michael, he received $1 million tax-free from his wealthier ex-spouse, who used the $1 million lifetime tax exemption allowed for his estate.
The ABA Journal also looked at the legal problems of gay couples in its July 2004 feature, “The Changing Face of Gay Legal Issues.”
