Until all states recognize same-sex marriages, transfer and recordation taxes between spouses will need to be factored into any re-titling decision.
Since the Windsor case was an estate-tax case, it resolves the issues of the disparate treatment of same-sex couples for the purposes of state and federal estate and gift taxes. Since many other provisions of the federal estate and gift tax statutes now cannot apply to the traditional definition of marriage and spouse, this decision will have significant impact on same-sex couple estate plans as well. It would appear that since federal estate and gift tax laws can no longer use the traditional definition of a marriage or spouse, they will look to each state’s definition for guidance.
Additional questions arise when same-sex couples residing in Maryland or the District own property in a
state that has not yet legalized same- sex marriage: Can or should that couple re-title their second home or investment property? What happens if one partner dies? Which state’s inheritance laws apply?
The answers depend on the state in which the property is located. For example, in states that currently recognize civil unions, but not gay marriages, same-sex couples can hold real property as tenants by the entirety. In order to re-title property already owned, the law requires that all lenders consent to such change. Jacobs said his clients “have not experienced any problems obtaining lender consents in Delaware.” Jacobs added, however, that in Virginia—which does not recognize same-sex marriages, civil unions or domestic partnerships—“the best you can do is a joint tenancy with rights of survivorship.”
At the federal level, the Garn- St. Germain Act provides that real property transfers between spouses are exempt from the “due-on-sale” clauses contained in virtually all mortgages. It appears that when a same-sex couple resides in a state where gay marriage is recognized, transfers between those partners will also be exempt. But what about when that same couple seeks to transfer property located in a state that does not recognize their marriage? Will they be subject to the onerous due-on-sale clause that permits a lender to declare the loan to be in default and accelerate the entire unpaid principal balance? The recent Windsor decision would appear to leave this as an open question. The penultimate sentence states that “This opinion and its holding are confined to those lawful marriages,” such as marriages that are already lawful in the 12 states accepting same sex marriages as valid.
These issues are far from clear. As with most radically new laws, it will take many years for the regulations and subsequent court cases to clarify just how the new laws will apply to the various real-world scenarios impacted. Regulators and jurists should use
this opportunity to re-think whether marital status should be a factor at all when determining federal and or state private property rights. If all persons were treated equally under both state and federal laws regardless of their sex or marital status, cases like Windsor would never be necessary.
Harvey S. Jacobs is a real estate lawyer with Jacobs & Associates. He is an active real estate investor, developer, landlord settlement attorney and Realtor. This column is not legal advice and should not be acted upon without obtaining legal counsel. Jacobs can be reached at firstname.lastname@example.org.