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The Effect of DOMA Being Struck Down: Same-Sex Marriage and Bankruptcy

The Supreme Court in a 5-4 Decision overturned provisions of the Defense of Marriage Act which defined marriage between a man and a women. The court found that DOMA violated provisions of the 5th amendment by treating same-sex marriages as "living in marriages less respected that others" (Justice Anthony Kennedy). The decision handed down appears to have significant implication for couple's who live in states where same sex marriage is recognized.   Generally the federal government has  recognized the marriage as valid under federal law, where the state in which the couple's were married, recognizes it as a valid marriage.

The decision is likely to have significant implications for same-sex married couples wishing to file for bankruptcy protection.  Prior to the decision by the Supreme Court, a same-sex married couple may not have been able to file a joint bankruptcy petition. Although Section 302(a) of the Bankruptcy Code allowed the joint filing of a bankruptcy case by a couple who is legally married, the U.S. Trustee's office would generally argue that DOMA disallowed same-sex marriages from filing a joint petition. Although some cases were successful in allowing same sex joint bankruptcy filings, the process generally involved an uphill battle to avoid the case from being dismissed. In re Somers and Caggiano, No. 10-38296 (Bky.S.D.N.Y. May 4, 2011), In re Balas and Morales, No. 2:11-bk-17831 (Bky.C.D.Cal, June 13, 2011), and In re Ziviello-Howell, No. 11-22706 (Bky.E.D.Cal. May 31, 2011).

The Effects  of the Decision on Bankruptcy

Same-sax married couples in state's recognizing the marriage as valid should now be able to file a joint bankruptcy petition. The effect of this has both benefits and drawbacks in filing a bankruptcy case:

  • Prior to decision some debtors in same sex marriages would have to file two separate bankruptcy cases. This would double the costs for debtor's in a same sex marriage to file for bankruptcy protection. In addition it would create complications in the case where debtor's in same-sex marriages who were both on title to a property needed to remove a second mortgage from their home.
  • Prior to the decision a debtor filing a single bankruptcy petition that was in a same-sex marriage would have the option to list only the income that his spouse contributed to the household. This option would allow some same-sex married couples the option to file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy depending on the contributions of the other spouse to the household. The current decision would require that both spouse's incomes be listed in the bankruptcy petition regardless of whether a single or joint bankruptcy petition is filed. This would remove the ability to qualify for Chapter 7 bankruptcy protection for some debtors. Debtor's will now have to list both spouse's incomes under the means test to determine their qualification to file for Chapter 7 bankruptcy protection. (Subject to Marital Adjustment)
  • Prior to the decision a debtor in a same-sex marriage may not have been able to utilize some of the bankruptcy exemptions to protect certain assets. For example some of the homestead protections available in California under section 704 allow for additional homestead protections where the debtor is a member of a family unit. This family unit includes the debtor and his spouse if they reside together in the home. The unconstitutionality of DOMA will remove doubt that debtor's in a state recognized same-sex marriage can utilize certain bankruptcy exemptions to protect assets.
  • Prior to the decision a couple in a same-sex marriage would not be required to list the property and assets of the spouse.  Recognition of the marriage under federal law would require that all assets and property that are considered community assets under state law be listed. This can create problems where the couple's community assets are substantial.

The overall effect of the unconstitutionality of DOMA on various areas of law including bankruptcy will evolve over time. Some of the effects will be beneficial to same-sex couples, but it will also remove some of the flexibility in some areas of the law including bankruptcy.

 

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