Same-Sex Marriage, Real Estate and the Law

Same-sex couples often jump through legal hoops when dealing with their joint finances -- and owning real estate is no exception. If the Supreme Court strikes down the law that defines marriage as the legal union between a man and a woman, some, but not all, of these obstacles may be removed.

When it comes to owning a house together, gay married couples can expect to see a few changes if the Supreme Court rules that a part of the Defense of Marriage Act, or DOMA, is unconstitutional. Those changes will affect the mortgage interest tax deduction and Veterans Affairs home loans.

A Supreme Court ruling could have a harder-to-define effect in the 50 states and District of Columbia. Each jurisdiction has its own laws regarding the treatment of same-sex couples, as well as its own laws governing ownership of real estate.

This article first describes what could happen federally with the mortgage interest tax deduction and VA loans. Then, a clickable map summarizes how same-sex homeownership is governed in the states.

Same-sex marriage and the mortgage tax deduction

Married gay couples who have a mortgage together will be able to claim the mortgage tax deduction jointly if DOMA is struck down. That's because without DOMA's federal definition of marriage, they will be allowed to file federal tax returns jointly.

Currently, same-sex couples married in states that allow gay marriage have to file their federal income taxes separately because DOMA prevents the federal government from recognizing their marriages.

"If the federal government doesn't recognize your marriage and you cannot file jointly -- even if, for state purposes, you do file jointly -- then one person is usually claiming the (mortgage) tax deduction even though in reality two people are paying for the mortgage," says Gideon Alper, an attorney in Orlando, Fla. "Right now, I am taking the mortgage interest deduction on my property, and my partner is not, even though we are both contributing to the mortgage payment."

Two unmarried people who have a joint mortgage can split the mortgage interest tax deduction, as co-borrowers. Say they have $5,000 in interest to deduct. Each co-borrower could claim $2,500. But splitting the deduction and filing separately doesn't always make financial sense to a couple. For example, the deduction might not be higher than the standard deduction when it is split in two.

Same-sex marriage and Veterans Affairs loans

Currently, a service member or veteran married to a person of the same sex who wants to get a Veterans Affairs loan can't include his or her partner as a spouse on the loan. According to federal rules, the definition for spouse requires the individual to be a "person of the opposite sex."

They could get a VA loan with a joint loan, but unless both partners are veterans, the VA would guarantee only the portion of the loan allocable to the veteran. For example, if the two partners apply for a joint VA loan of $200,000, the VA guaranty would apply to $100,000. Eliminating DOMA's definition of marriage would be the first step to allow the same-sex spouse of a veteran to get the same rights as opposite-sex married couples.

The change wouldn't be automatic because in addition to DOMA, Title 38 -- which governs VA benefits -- also restricts the definition of spouse to opposite-sex couples. But if DOMA is ruled unconstitutional, Title 38 would likely go the same way, says Caren Short, an attorney at Southern Poverty Law Center. She is co-counsel on a federal case challenging both DOMA and Title 38.

"Challenges to Title 38 exist, and they already are in a position to be decided as soon as the Supreme Court decides on DOMA," she says. "Courts that have been waiting for that decision will also find Title 38 unconstitutional."

Many real estate rules, including title laws, are governed by states, so rules for same-sex couples who own property together vary by state.

The DOMA case before the Supreme Court focuses on whether the federal government has the right to define marriage as the union between a man and a woman. It will ultimately determine whether "the existing marriages of same-sex couples will be recognized and respected for federal program purposes," says James Esseks, director of the Lesbian Gay Bisexual Transgender and AIDS Project of the American Civil Liberties Union.

The case challenges only Section 3 of DOMA. Another part of the law, Section 2, says that states don't have to recognize marriages of same-sex couples even if they are legally married in another state. That section is not the issue being considered by the court. Unless the court's opinion says states must recognize same-sex marriages performed in other states -- which is unlikely -- little will change in states that don't allow gay marriages.

Click on a state to see a description of how the law affects same-sex couples who own real estate.

States and districts where same-sex marriage is legal:

Connecticut
Delaware (as of July 1, 2013)
District of Columbia
Iowa
Maine
Maryland
Massachusetts

Minnesota (as of Aug. 1, 2013)
New Hampshire
New York
Rhode Island (as of Aug. 1, 2013)
Vermont
Washington

Marriage is a legal status that provides the spouses a variety of reciprocal obligations, rights and protections. Heterosexual marriages in each state are recognized by all other states, as well as by the federal government.

These states already treat same-sex married homeowners with equal rights. Married couples can take title to the house as spouses regardless of sex or sexual orientation. The overturning of DOMA would give same-sex couples in these states additional rights on a federal level, including claiming the mortgage tax deduction as a couple filing federal taxes jointly.

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States where civil unions are recognized:

Colorado
Hawaii
Illinois

New Jersey
Delaware (until July 1, 2013)
Rhode Island (until Aug. 1, 2013)

A civil union is a legal status that provides legal protection to same-sex couples in the applicable states only. Civil unions typically are not recognized outside the couples' state of legal residency.

In these states, same-sex couples can own a home with similar rights to married couples. As partners in a civil union, they can hold title through tenancy by the entirety, which is a right that used to be available only to "husband and wife."

With tenancy by entirety, the parties own an undivided part of the property, which means a spouse can't sell his or her interest in the property without the other spouse's signature. Another benefit to this method is that, when one spouse dies, the property automatically reverts to the survivor without going through probate. Tenancy by entirety also protects spouses from creditors because a creditor is not allowed to take away the home to satisfy the debt of one spouse.

Colorado does not have tenancy by entirety. Instead, the state has marital property rules, meaning that any property acquired by a spouse during the marriage belongs to both parties. Partners in a civil union in Colorado have these marital property rights.

Still, couples in these states could remain at a disadvantage with regards to the mortgage tax deduction and other federal benefits. That's because even if the federal government recognizes gay marriage, it remains unclear whether civil unions would be treated as marriages on a federal level.

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States that recognize domestic partnerships:

Nevada
Oregon
Wisconsin

A domestic partnership is a state-sanctioned legal status that allows unmarried couples, heterosexual and same-sex, to formalize their relationships and which extends some state rights to those couples.

These states allow domestic partnerships, but not all grant the same spousal rights to domestic partners when it comes to owning real estate as a couple. In Nevada and Oregon, partners in a domestic partnership have the same title rights as married couples.

In Wisconsin, partners can inherit property without a will. As long as the deed lists them as domestic partners, the property can be transferred automatically if one partner dies. But when partners separate, they don't have the same marital benefits for the division of property.

Washington is a special case: As of 2014, the state will allow domestic partnerships only to couples who are 62 years of age of older. Domestic partners don't have any of the community property rights that married couples have.

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State that recognizes domestic partnerships, complicated by Proposition 8:

California

The most populous state allows domestic partnerships. In May 2008, the California Supreme Court legalized gay marriages. Five months later, voters approved Proposition 8, which bans the marriage of same-sex couples. That law has been challenged and is under review by the Supreme Court, separately from the DOMA challenge.

California has community property laws, which is the presumption that property acquired during marriage belongs to both spouses. Registered domestic partners in California have the same community property rights as married couples. During the period gay marriage was legal in California, about 18,000 couples got married. The Supreme Court is expected to rule on the constitutionality of Proposition 8 by July. If ruled unconstitutional, same-sex marriage would resume in California -- and, potentially, similar bans in other states could be affected, as well.

There's a series of potential outcomes for the Proposition 8 case, says James Esseks, director of the Lesbian Gay Bisexual Transgender and AIDS Project of the American Civil Liberties Union.

"One of them is, gay couples get to get married in California, but it does not affect any other state," he says. "There is another version that could say every state in the country has to allow same-sex couples to marry. People are not superoptimistic that that is going to happen, but it could happen. Then that would change this issue about whether (same-sex) people can get married at all."

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States that do not allow same-sex marriage, civil unions or domestic partnerships:

Alabama
Alaska
Arizona
Arkansas
Florida
Georgia
Idaho
Indiana
Kansas
Kentucky

Louisiana
Michigan
Mississippi
Missouri
Montana
Nebraska
New Mexico
North Carolina
North Dakota
Ohio

Oklahoma
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
West Virginia
Wyoming

Same-sex couples in these states don't have the benefits and protections that married couples get. They are not allowed to hold title with tenancy by entirety in states where this right is available to opposite-sex couples. With tenancy by entirety, the parties own an undivided part of the property, so a spouse can't sell his or her interest on the property without permission from the other. When one spouse dies, the property automatically reverts to the survivor without having to go through probate. Tenancy by entirety also protects spouses from creditors as creditors are not allowed to foreclose on the home to satisfy the debt of one of the spouses.

In states with community property laws -- which say that property acquired after the marriage belongs to both spouses regardless of who paid for it -- the rights are reserved solely for opposite-sex couples.

Generally, same-sex couples in these states own property as tenants in common or as joint tenants with rights of survivorship. These methods are often used by business partners or relatives who own property together. While they grant the homeowners similar rights of joint ownership, they don't offer the full protection that married couples get. The rules in these states won't change with the DOMA ruling, unless the court requires states to recognize same-sex marriages performed in other states.

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