On May 14, 2013, Governor Dayton signed into law legislation revising the definition of "marriage" in Minnesota to include same-sex marriage. The law becomes effective August 1, 2013.
This landmark decision for the state has wide-reaching implications for Minnesota, including individuals, businesses and employers. The legal impact of the revision to the definition of marriage in the state will be felt in Premarital and Estate Planning, Real Estate law, as well as the Employment and Benefits areas. Especially in the areas of Employment and Employee Benefits, the new law will substantially affect employers and small businesses. In this Alert, we discuss some of the changes to look out for as a result of the Act, and provide guidance on how to prepare for the changes coming later this summer.
In addition, it is important for Minnesota residents and companies to consider the Defense of Marriage Act ("DOMA"), which continues to limit the definition of marriage to between a man and a woman for federal law purposes. Because of this, there may be instances in which Minnesota's law would be superseded by federal law and the marriage would not be recognized. The U.S. Supreme Court has heard arguments in two cases, one of which challenges the constitutionality of DOMA, and the Court is expected to decide both of these cases in late June. Depending on the outcome, additional issues may need to be considered.
Premarital Agreements and Estate Planning
For same sex couples who choose to marry in Minnesota after August 1, 2013, we recommend that they consider whether a Premarital Agreement is appropriate prior to marriage.
After marriage, each couple should review and update their estate plan. There will likely be estate and other tax savings as a result of the marriage, which ought to be incorporated into the estate plan.
For any same-sex couple who has already married in a state that legally recognizes same-sex marriage, some updates to estate planning documents may be appropriate after August 1, 2013.
Again, depending on the result of the U.S. Supreme Court's decision in the DOMA case in June, additional estate planning changes may result for same sex couples.
In Minnesota, marriage triggers certain rights and responsibilities in relation to real estate, even if the property were acquired prior to the marriage. If real property is titled in the name of only one spouse, upon marriage the other spouse may acquire certain rights that vest upon divorce or upon the death of the titled spouse. Because of this, after marriage, real property generally cannot be sold without the signatures of both spouses. Similarly, it will require both spouses to amend the terms of an existing mortgage or property-related document.
Existing co-tenancy or similar agreements between current domestic partners may also be affected and should be revisited if those partners are considering marriage. The upcoming decisions by the U.S. Supreme Court may also impact the taxation of real estate.
Employment Practices and Employee Benefits
Minnesota employers, businesses and individuals will need to consider the impact that the new law will have on their employment practices and employee benefits. Employers should also determine whether they will need to begin offering some or all of their benefits to same-sex spouses as of August 1, 2013. This decision will need to be based both on the specific federal or state law that governs each benefit and the definitions used in each separate plan document.
The civil marriage law impacts state discrimination protections under the Minnesota Human Rights Act ("MHRA") and could impact leave policies as well. For example, same-sex spouses will be protected from marital status discrimination under the MHRA. With respect to leave policies, any impact on leaves of absence governed by federal law, such as the Family and Medical Leave Act, will depend on the U.S. Supreme Court's decision in late June on the constitutionality of DOMA, as set forth above. However, we recommend that employers and businesses immediately evaluate their current leave and non-discrimination policies in light of state laws to ensure the policies are consistent and non-discriminatory.
Most employer-provided retirement benefits, through employee stock ownership plans, 401(k) plans and pension plans, are governed by federal law, including the Employee Retirement Income Security Act ("ERISA"), which generally preempts state laws. Therefore, we do not expect that Minnesota's same-sex marriage law will apply to most retirement plans. However, if the U.S. Supreme Court decision regarding DOMA addresses the constitutionality question, it is possible that the federal definition of marriage might change as well, and then Minnesota's new law will likely impact retirement plans.
Some retirement benefits, such as governmental plans and non-electing church plans, are not governed by ERISA. We recommend reviewing these plans to determine how they will be impacted by Minnesota's new law.
Welfare benefits (such as medical, dental, disability and life) usually are provided either from the employer's general funds ("self-funded") or through insurance. Most "self-funded" welfare benefits are governed by ERISA, which preempts state law, so that Minnesota's law will not have an effect upon these plans. Several other employer plans, including Section 125 "cafeteria" plans and medical expense reimbursement plans, are largely designed to provide pre-tax benefits under federal tax law. Since federal law under DOMA currently does not recognize same-sex marriage, the new Minnesota law should not require these plans to recognize same-sex spouses.
Other employer programs, such as stock options or appreciation rights, stock purchase plans, and employment-provided fringe benefits, generally are not governed by ERISA. For these programs, any regular or survivor benefits need to be extended to same-sex spouses. If you have these plans, we recommend that they be reviewed.
Benefits Provided Through Insurance
Although ERISA and other federal laws generally preempt state laws, states are permitted to regulate insurance. Therefore, it is likely that Minnesota's insurance laws will require that any insurance-provided benefits for spouses be extended to same-sex spouses. This would include health, dental, disability and life insurance. We anticipate that Minnesota will be issuing guidance concerning whether this change must occur when Minnesota's same-sex marriage law goes into effect on August 1, 2013, or at a later date, such as the start of the next policy year. Please check back with us as August 1 approaches so that we can keep you informed.
Domestic Partner Coverage
Some employers currently extend benefits, especially health benefits, to same-sex domestic partners. For most, the purpose has been to provide benefits to same-sex partners who could not have a marriage recognized under state or federal law. Now that Minnesota recognizes same-sex marriage, employers will need to decide whether they will continue to provide domestic partner coverage, or whether same-sex partners will need to marry in order to qualify for these benefits.
Tax Impact of Providing Same-Sex Spouse Benefits
Currently, neither Minnesota nor federal law permits pre-tax or tax-free benefits for same-sex partners unless the partner qualifies as a "dependent" for federal tax purposes. Although Minnesota's same-sex marriage law will not change the federal income tax treatment of these benefits, it seems likely that these benefits will no longer be subject to Minnesota income tax once the law goes into effect.
Definitions of Spouse Used in Plans
Regardless of whether or not an employer's benefit plans will be required to provide coverage for same-sex spouses, employers should review the definitions of "spouse" used in their plans to determine whether the definitions will continue to reflect the employers' intent once Minnesota begins to recognize same-sex marriage. For example, a plan definition of "spouse" that refers to Minnesota Statute Section 517.01 will automatically expand to cover same-sex marriage once the new Minnesota law goes into effect.