Of the thousands of benefits available to married couples, one is the opportunity to file joint bankruptcies. Section 302 of the Bankruptcy Code permits an individual and “such individual’s spouse” to file bankruptcies together. Joint bankruptcies are less expensive than filing separate petitions, and, in some cases, may have legal advantages.
Can legally-married same-sex married couples file a joint bankruptcy? The “Defense of Marriage Act” (DOMA), which prohibits recognition of same-sex marriages in relation to federal laws would seem tio prohibite it, but an announcement by the United States Department of Justice yesterday may change all that.
There are surprisingly few bankruptcy cases on the issue; two to be precise that I can find. In in re Allen 186 BR 769; Bankr. N.D. Ga. 1995, a case which preceded enactment of the DOMA, the court flatly rejected a joint same-sex petition. It appears that the bankrupts in Allen, though married in a Las Vegas ceremony, did not have a marriage legally recognized under state law.
In 1996, President Clinton singed DOMA. Section 3 of the statute (1 U.S.C. Sect. 7) states: “In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.” DOMA, therefore, applies to the Bankruptcy Code, a federal law.
The application of DOMA and bankruptcy was reviewed extensively in the only other reported bankruptcy court case I could find on the issue, In re Kandu (315 BR 123; Bankr. W. D. Wash. 2004). There the debtors were legally married in Canada and filed a joint bankruptcy in Washington. The Court Clerk filed a motion to reject the joint petition, and the Office of the United States Trustee, a division of the United States Justice Department, intervened and contended the petition should be dismissed as a violation of DOMA (the legal status of the marriage under Washington law was unclear, and the parties agreed to argue the constitutionality of DOMA only, leaving the state law issue open.)
The Court in Kandu agreed with the US Trustee and rejected all arguments that DOMA was unconstitutional. The strongest constitutional arguments involved the 5th and 14th Amendments to the Constitution, which require the federal and state governments to offer all citizens the equal protection of the law. People are treated unequally by the government all the times; as a simple example, wealthy people are taxed at a higher tax rate than lower income taxpayers. This is considered constitutionally acceptable, while a different tax rate based on race would not. The difference is the level of scrutiny the class of people treated unequally deserves. When it cones to asserting different tax rates based on income, the test is whether there is a “rational basis” for the different treatment. If the government treats racial classes differently, however, the test is much higher, and the government action is subject to “strict scrutiny” – an extremely high test to pass.
In Kandu, the bankruptcy court was bound by previous decisions of the Ninth Circuit Court of Appeals that laws classifying people based on sexual orientation must only pass the rational basis test. Accordingly, at the urging of the U.S. Trustee, the Kandu Court concluded that DOMA was constitutional.
Many other Circuits Courts of Appeal had declined to apply heightened scrutiny to laws differentiating people based on sexual orientation (see Lofton v. Secretary of Dept. of Children, 358 F.3d 804 (11th Cir. 2004), and footnote 16 of that decision citing other Circuit Court decisions.) But for some reason, the Second Circuit Court of Appeals, which covers New York, Connecticut, and Vermont, never issued a determination as to what standard would apply in this circuit regarding laws classifying people on the basis of sexual orientation.
President Obama, as a candidate, expressed opposition to DOMA, but as President he is obligated to enforce the laws of the United States, no matter his personal opinion. So when challenges to DOMA’s constitutionality were being litigated in various federal courts, the Department of Justice defended the law on the grounds that the Circuit Courts in those jurisdictions had previously ruled that laws like DOMA would be reviewed under the rational basis test.
This reliance on Circuit Court precedent was not available when two lawsuits challenging DOMA were appealed to the Second Circuit last year:
Windsor v. United States,10-cv-8435 (S.D.N.Y.) and Pedersen v. OPM, 10-cv-1750 (D. Conn.) (See New York Times Nov. 8, 2010, article by John Schwartz). To defend DOMA before the Second Circuit, the Justice Department would have to argue that the rational basis test was proper, not merely that precedent in the Circuit required its application.
According to Attorney General Eric Holder, heightened scrutiny of equal protection claims under the 5th and 14th amendments are called for if the classified group 1) has suffered a history of discrimination; 2) “obvious, immutable or distinguishing characteristics” define membership in the group; 3) the group is a minority or lacks political power and 4) whether the characteristics of the group have little relationship to legitimate policy objectives. Attorney General Holder, and President Obama, came to the conclusion that they could not argue that sexual orientation did not meet this definition in the two cases pending in the Second Circuit.
Yesterday (Feb. 23, 2011), Attorney Heneral Holder sent a letter to the Speaker of the House of Representatives informing him that the President and the Justice Department believes that strict scrutiny is the appropriate standard of review for laws dealing with sexual orientation, that the Justice Department believes DOMA fails that test and, therefore, the Justice Department would no longer argue that DOMA was constitutional, either in the pending Second Circuit cases or in any other court. The letter was sent pursuant to 28 U.S.C. Sect. 530D, which requires the Department of Justice to report to Congress any policy to refrain form applying or enforcing any federal law. Apparently Congress could take up a defense of the law’s constitutionality in court.
While New York State does not grant same-sex marriages, the state does recognize same-sex marriages lawfully granted elsewhere, such as in Canada or Massachusetts. So what would happen if a same-sex couple, married in Canada and living in Rochester, filed a joint bankruptcy petition tomorrow? I suppose any party in interest could file an objection – the trustee, creditors, even the court clerk. But the usual monitor of bankruptcy code violations is the United States Trustee, a division of the Justice Department.
Attorney General Holder’s letter to Congress states “Notwithstanding this determination, the President has informed me that [DOMA] Section 3 will continue to be enforced by the Executive Branch. To that end, the President has instructed Executive agencies to continue to comply with Section 3 of DOMA, consistent with the Executive’s obligation to take care that the laws be faithfully executed, unless and until Congress repeals Section 3 or the judicial branch renders a definitive verdict against the law’s constitutionality.”
So what happens? A same-sex petition is filed, the US Trustee objects under DOMA, the debtor claims that DOMA is unconstitutional, the US Trustee agrees, and . . . then what?
The financial stakes are low (basically the difference in attorney and filing fees between a single or a joint filing), so I don’t know if a same-sex married couple will pursue this, unless it is for the principle of the thing.
Additional links on the issue:
New York Times “Suits on Same-Sex Marriage May Force Administration to Take a Stand” January 28, 2011, article by Charlie Savage about the discussions within the administration leading up to this decision
New York Times “In Shift, U.S. Says Marriage Act Blocks Gay Rights”; February 23, 2011, article by Charlie Savage and Sheryl Gay Stolberg
Slate “Why the Obama administration changed its mind about the Defense of Marriage Act”, February 23 post by Dahlia Lithwick
Daily Kos “DOJ will no longer defend DOMA’s discrimination”; February 23 post by Adam B, with a good analysis of the various standards of review in equal protection cases
New York Times “Obama Decision on Marriage Act Has 2012 Implications”; February 24 blog by Michael D. Shear on possible political implications of the President’s decision