Gay Marriage and Filing Joint Bankruptcy: Should the Nuptial Wait Until After Bankruptcy?

Should same sex couples, who are thinking about bankruptcy, think twice about getting married and file separately?

Same-sex couples fought hard to make same-sex marriage legal in New Mexico. Now they can file a joint bankruptcy petition – but should they?

The issue of whether same-sex couples can marry legally in New Mexico is currently pending before the New Mexico Supreme Court. The New Mexico Supreme Court is currently comprised of five Democrats, and is generally considered to be a little left-leaning in many of its decisions. On top of that, the New Mexico statutes are very vague about whether the law currently allows same-sex marriage without any constitutional interpretation.

Many county clerks are already issuing marriage licenses to gay couples, including the three of the most populous counties in the state, Bernalillo, Dona Ana and Santa Fe. The news outlets that covered the oral arguments before the New Mexico Supreme Court have reported that the justices seemed hostile to the arguments against same sex marriage.

At Albuquerque Business Law, we are predicting that the New Mexico Supreme Court will find that same sex marriages are legal in the state. In particular, the Justices seem to agree with a 2011 New Mexico Attorney General Opinion that same-sex marriages, performed in states where gay marriage is recognized, are valid in New Mexico. Therefore, even if the Court were to find that same-sex marriage is not authorized in New Mexico, a couple merely needs to visit a state where gay marriage is legal, get legally married there, and come back to New Mexico.

In our opinion, same sex marriage is here to stay in New Mexico. At Albuquerque Business Law, we neither endorse nor oppose this issue as a policy matter. We endeavor to help our clients achieve the best results within the bounds of the law, no matter what their situation may be.

Gay Marriage, DOMA and Bankruptcy

Coincidently, at around the same time that the New Mexico courts and county clerks were grappling with the same-sex marriage debate, in June of 2013, the United States Supreme Court struck down the federal Defense of Marriage Act (“DOMA”). DOMA prohibited same sex married couples from taking advantage of federal benefits.

Many bankruptcy courts had already allowed legally married same sex couples to file a joint bankruptcy petition, but those courts struggled to deal with DOMA. Now that DOMA has been invalidated by the U.S. Supreme Court, and gay people can get married in New Mexico, the path is clear gay couples to get married and file a joint bankruptcy petition here. The problem is that it might not be a good idea to do the marriage before the bankruptcy.

Now that gay couples have the same rights as heterosexual couples, that includes the right to be discriminated against for being married in some instances. For example, there is a well-known “marriage penalty” for high earning couples, especially when both parties are high earners.

The Marriage Penalty Swings Both Ways

For gay couples who fought the good fight and are successful: Congratulations! You’ve won the right to marry your partner, however, you have also won the right to pay more income tax, just like your successful and married, heterosexual peers.

There is also a lesser known, but very real, marriage penalty in the Bankruptcy Code. Here is how it works. It relates to the so-called “means test” in bankruptcy, where someone has to be under a given median income to automatically qualify for Chapter 7 bankruptcy.

Here at Albuquerque Business Law, we specialize in helping people legally qualify for Chapter 7 bankruptcy even if their incomes are seemingly too high. However, that is another topic, which is complex in and of itself. I will write on that another day.

Getting back to the basic means test, it is based on the size of family. If a family is under the median income for a certain size family, they automatically qualify for Chapter 7. If they are above that level, then there may be a problem. The family may have to file for Chapter 13, which is a longer and more cumbersome process, and may not be desirable.

In New Mexico, as of this writing in 2013, the median income for a family of two is about $52,000, while the median income for a family of one is about $38,000. What that means is that if two people in a household each make, say, $35,000 and are married, they might have a hard time qualifying for Chapter 7 bankruptcy as a married couple, but would each individually qualify easily if they were not married. I have known of couples to get divorces so one or both of them could file for bankruptcy. Congress inadvertently incentivized strategic divorces, and that behavior is probably perfectly legal at best.

In my years of representing people under the bankruptcy code, I have helped many gay couples. In my experience, it has usually been a good thing, for bankruptcy purposes, that the couple was not married. For instance, if each partner of same sex relationship has a child, then two bankruptcies can be filed, and each easily qualifies so long as the income of each partner is below $52,000—the median income for a family of two. If they were married, the median income for a family of four is approximately $62,000. So if their combined income is more than $62,000, a gay couple would often have been better off if they were not married, for Chapter 7 bankruptcy purposes.

In writing this blog, I was reminded of one conservative commentator who also favored gay marriage, Jonah Goldberg, when he wrote on the abolition of “Don’t Ask Don’t Tell” in the military: “So now openly gay soldiers get to fight and die in . . . wars too?” Similarly, openly gay people can find themselves subject to all the legal burdens, as well as the benefits, of legal marriage.

In summary:

Whether you are gay or straight, if you are in debt,  please see your bankruptcy lawyer before you say “I do.”

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