Category Archives: Topics of Interest

Debt Forgiveness and Income Tax

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Debt forgiveness, which is the cancellation of a debt that you owe to someone, often can lead the IRS to see an increase in your income tax bill. However, there is no simple rule to be applied to every situation. For example, if you are in bankruptcy, the IRS is unlikely to see income that can be taxed after debt forgiveness. On the other hand, when a commercial lender cancels your obligation to repay a debt, you may find yourself with income equal to the amount of debt forgiven. In this situation, you do not have any money in hand, but you can expect a tax bill on the amount of money that the lender decided could not be collected from you. Your former lender usually should send you an IRS Form 1099-C (“Cancellation of Debt”) to let you know that the debt that you no longer owe triggered an increase in income taxes at the time of debt forgiveness. Remember that the IRS also gets a copy of the 1099-C and is unlikely to forget the incomes taxes that you now owe.

You may wonder why you receive debt forgiveness income when you cannot repay a loan. One point that will be discussed later is that the IRS does not see income when a debt is cancelled so the explanation here is general. The idea behind debt forgiveness resulting in income begins with the fact that the funds you originally borrowed were not income since those funds represented money loaned to you that had to repay to the lender. When a debt is forgiven, you no longer have to have any obligation to pay back whatever amount of the loan remains unpaid – essentially, your wealth has increased now that you have money that you can keep.

As long as none of the exclusions or exceptions (which will be mentioned below) regarding debt forgiveness income applies, the formula for calculating income simply involves subtracting the fair market value of the property from the debt owed at the time that the lender took a specific action, such as foreclosure or repossession. Also, you may receive a capital gain due to foreclosure, for example; this is not debt forgiveness income but usually occurs when the property’s fair market value is greater than its adjusted basis (approximately your original purchase price plus the costs from major improvements). An amount could be excluded due to the length of time that this was your personal residence during the last five years – I won’t go into the details here because the focus is on debt forgiveness for the moment.

There are several exceptions when debt forgiveness does not lead to taxable income. The examples provide general rules about various exceptions, which could be subject to exceptions themselves – consulting with someone who handles these matters about your specific situation always is advisable.

In general, a debt that is cancelled through a gift, a bequest or devise, or an inheritance is not considered income. Certain student loans also provide that all or part of the debt incurred to attend a qualified educational institution will be canceled if the person who received the loan works for a certain period of time in certain professions for any of a broad class of employers. If your student loan is canceled as the result of this type of provision, the cancellation of this debt isn’t included in your gross income. To qualify for this treatment, the loan must have been made by entities in one of three categories: 1) the federal government, a state or local government, or an instrumentality, agency, or subdivision of one of those governments; 2) a tax-exempt public benefit corporation that has assumed control of a state, county, or municipal hospital, having employees defined as public employees under state law; or 3) an educational institution (an organization that has a regular faculty and curriculum as well as regularly enrolled students who attended educational activities at that place). Other criteria have to be met for these loans not to be income if they are cancelled. One major reason for debt forgiveness here is to encourage students to serve in occupations or areas with unmet needs in which the services provided are for, or under the direction of, a governmental unit or a tax-exempt Section 501(c)(3) organization.

There also is an exception for deductible debts. Most individuals use the cash method of accounting so income is seen when the money is received while expenses are counted when money is paid for goods or services. Therefore, when a debt was supposed to be paid but the obligation to do so was forgiven, you would not realize income at that time if payment of the debt would have been a deductible expense for you.

The Home Affordable Modification Program (HAMP) also has some exceptions to debt forgiveness income. Reduction of your principal mortgage balance generally is not income when Pay-for-Performance Success Payments and PRA investor incentive payments are involved. Meanwhile, when the principal balance is reduced due to Principal Reduction Alternative under the same program, you should expect that you have taxable debt forgiveness income. Any exception to possible debt forgiveness income can become complicated; again, seeking a professional’s assistance is the best way to protect yourself from making costly mistakes in this area.

After any possible exceptions are reviewed, you then look at the exclusions. For individuals, some of the most common situations that are excluded from consideration as income from the cancellation of a debt would be the following. The most common one probably involves bankruptcy – if a debt is discharged in a bankruptcy case, then it cannot be counted as income from debt forgiveness. Insolvency, which involves a situation when your assets have a fair market value that is less than the amount of all of your debts, also would exclude you from having debt forgiveness income. However, this is not easily determined so you would be wise to have a tax professional examine your financial position to determine if you are insolvent.

Another category of exclusion that is complicated and would require the help of a tax professional usually deals with certain farm debts. The IRS also has noted that non-recourse loans are not subject to debt forgiveness. These loans permit a lender to repossess the property that you financed with the unpaid debt or, if this does not apply, the property that you used as collateral in the event that you defaulted on the loan. There is no personal liability for the default on a non-recourse loan, which is why you do not gain taxable income from the debt’s cancellation. On the other hand, this type of loan still could result in a capital gain when the property is sold.

Exceptions should be applied before you apply the exclusions because their effects on “tax attributes” of yours are different. Unlike exceptions to tax forgiveness income, exclusions require you to reduce tax attributes, which include certain credits and losses as well as the basis of assets. Remember that, while income due to debt forgiveness can seem to be a relatively simple concept, there are many twists to this concept of which you must be aware, and the only way to approach this is to consult with a tax professional about all of the implications that ultimately will impact your tax bill.

There is one final word of caution when the possibility of income from debt forgiveness exists. Whether or not a Form 1099-C was received does not determine income tax implications. The IRS requires these forms only under certain circumstances. When a creditor cancels a debt of less than $600, you may not get a Form 1099-C. However, you must look at the possibility that you received income that is taxable due to debt forgiveness despite the absence of the 1099-C because the IRS would look for income in this situation and will not be do forgiving if you neglected to pay tax that you owed.

Length of Separation in Divorce & Its Impact

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In 1980, Pennsylvania’s Divorce Code underwent a monumental change. Previously, one spouse had to prove that the other spouse was at fault for the marriage’s breakdown due to such reasons as adultery or indignities (a course of conduct making a spouse’s condition intolerable and life burdensome). She or he also needed to be the “injured and innocent” spouse, meaning that the other spouse was the primary cause of marital discord. 1980 brought “no-fault” divorce, which could be based on the parties’ consent that the marriage was irretrievably broken or based on the length of separation due to the marriage’s irretrievable breakdown. Because the length of separation seems likely to change in the near future, this is the focus here.

In all no-fault cases, one party claims the marriage is irretrievably broken – marital difficulties have caused an estrangement leaving no reasonable likelihood of the parties getting back together. When one spouse won’t consent to a divorce, the no-fault ground focuses on living “separate and apart” for a certain length of time. A separation is a fact-based determination. There is a presumption that the parties separated on the date the divorce complaint was served, but a spouse can choose a different date if the facts support it. Separation doesn’t require living in different residences – living separate lives is what matters. The end of sexual relations and financial independence are factors that help to prove separation. Communicating the intent to separate also is an important fact.

A not-too-uncommon question is how sex between separated spouses affects a period of separation. Involvement one time shouldn’t end the original separation. However, occasional intercourse could be an important fact causing a judge to decide the separation has ceased. An attempt to reconcile for a month or two could end a separation, too. If the spouses break up yet again, the separation starts all over again.

The ability to obtain a divorce due to the length of separation has important implications. Before no-fault divorce in Pennsylvania, only the “injured and innocent spouse” could obtain a divorce. No-fault grounds mean that even a spouse whose behavior causes the marriage to fall apart can obtain the divorce. Additionally, if a no-fault ground exists for granting the divorce, then a fault-based divorce cannot be obtained. The length of separation required can come into play here. If one spouse won’t consent and the parties haven’t been separated long enough for a non-consensual no-fault divorce, then the spouse who files might seek a divorce based on fault under these circumstances. However, when the required separation period becomes shorter, fewer spouses will have to choose to pursue a fault ground here – if the length of separation is reduced to one year in Pennsylvania, the difficulty of pursuing a divorce on a fault ground would make it less attractive and necessary as the path to obtaining a divorce.

A divorce based on the length of separation affects property and related issues, too. Although the following does not directly deal with the issue of length, spouses who begin living separate and apart have a date of separation. This matters because property acquired after this date is presumed to be non-marital and does not automatically become subject to equitable distribution. (An important point about presumptions in law is that they are not rules without exceptions; instead, when someone gets the benefit of a presumption, the other party can rebut it with evidence overcoming the presumption.) A longer period of separation generally will mean the parties will claim more property as being acquired after the separation and, therefore, not subject to equitable distribution.

A divorce case often involves issues beyond the divorce itself, including property distribution, custody, and support. At one time, divorces in Allegheny County generally would be subject to automatic bifurcation, which meant that the divorce was granted before the remaining claims were resolved. In 2005, the Divorce Code was revamped so that bifurcation became the exception. For the exception to apply in a divorce based on the length of separation, a party has to establish specific grounds for the divorce as well as compelling circumstances favoring bifurcation for the marriage to end before economic claims are decided. The court wants to see that the dependent spouse, in particular, receives economic protection during a bifurcated divorce.

While different counties may be more likely to allow bifurcation, it should be remembered that the statute doesn’t favor bifurcation. Therefore, a party in a divorce based on length of separation could have to wait for the required separation period to pass and then wait even longer for other claims to be decided before receiving a divorce decree. If the period of living separate and apart becomes one year, this should result in a shorter period overall for a decree in divorce even without bifurcation.

A final note about changes in the length of separation: the last change occurred in 1988 and affected any separation that began after February 12th of that year. If you separated on February 13th or later, you had to wait two years while a separation that began on February 12th still was subject to a three-year separation. Whether this approach would be used again isn’t known yet. However, it is something to think about if you’re considering a possible separation and divorce right now.

When is a Power of Attorney in Effect?(Pt 2)

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In the previous post, I took a brief look at various powers of attorney found in Pennsylvania’s laws and discussed how and when they take effect. However, the issue of timing regarding when a financial power of attorney can be used often is something that the principal who would be giving the power wants to address in the document due to concerns such as loss of control and possible abuse. The topic of timing in combination with varied reasons for having a financial power of attorney is the subject of the second part of this discussion of powers of attorney in Pennsylvania.

As your power of attorney is being drafted, you and the attorney should discuss its focus or purpose as well as how to use specific powers to achieve this. There are situations that can be handled by a more limited power of attorney. This limitation may mean that it only can be used by your agent for specific periods of time. If not specified, Pennsylvania law presumes that a power of attorney is durable, however.

The term “durable” means that it is in effect and, technically, could be used by your agent from the moment when it is executed (or, to put it more simply, when it is signed). People often feel that this means that they are giving away the authority to handle financial matters, even though they are capable of doing so, and worry about the power being abused. This, in turn, can spark interest in limiting when the document will be effective. Such restrictions could make sense, depending on the purpose for this document.

A non-durable power of attorney can be used by your agent only when you are not incapacitated. This generally is when you least need to have one. As an instrument of estate planning, this would have little use because you would not need someone handling financial affairs to carry out the objectives of your estate plan while you are capable of doing so.

However, a non-durable power of attorney can be useful to give someone the authority to handle a transaction when you are not able to be present for some reason. The non-durability combined with the limited scope (for example, the authorization for an agent to complete the sale of a vehicle) can make this useful because, in the example, you can sell the vehicle even though you cannot be present and the document only exists until the specific transaction is accomplished.

In other scenarios, a durable power of attorney makes more sense. You might not like the sound of giving your agent the power to handle your banking transactions or to sell your real property (which might mean the house in which you are living). However, if you are handling your affairs, it would not be that easy for someone to take over. If the agent would try to do this, you can put an end to the attempt by revoking the power of attorney, which is easy to do. An agent who misuses this power can be subject to civil and criminal penalties, and you are likely to know if your agent is making such attempts.

For example, to sell your house, the agent would have to record the original of the document in the appropriate office in the county in which the property is located and would have to show the property to prospective buyers. Meanwhile, monthly statements from your financial institution would reveal any problems involving transactions that you did not authorize.

Also, your choice of the agent should reduce the likelihood of abuse of power – you need to trust the person you name as your agent. While this is no guarantee, you should not name someone as your agent if you have doubts about his or her trustworthiness. Instead, this would be a situation in which you might want to wait to get a power of attorney.

Some people prefer to have a “springing” power of attorney, which springs into effect when a specified event occurs. Often, the event involves the person becoming disabled or incapacitated because this is when someone would be needed to handle financial and other affairs. The potential for problems exists because you need a well-defined point at which the power of attorney springs into effect.

Disability and incapacity should be determined by medical professionals. There may not be a doctor available when this occurs so there could be a lag in time before someone can act as your agent. There also could be difficulty in getting a doctor to sign an affidavit acknowledging your condition. Then, if you no longer are disabled or incapacitated, you should get another affidavit stating this and making the springing power ineffective again.

In the end, a durable power of attorney usually is the best choice. The power is least likely to be abused when you can handle your own affairs, and you can easily revoke it during this time. Periods of disability or incapacity are when the power of attorney has the greatest potential for abuse, but the likelihood is limited when you take the time to choose someone you trust to be your agent. Finally, a financial power of attorney must have an acknowledgment signed by your agent detailing the responsibilities of an agent and noting the consequences of ignoring them, which helps to reduce any temptation that might exist.

When Is a Power of Attorney in Effect?(Pt 1)

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A Power of Attorney can be useful for numerous reasons. For instance, the importance of a financial power of attorney often is seen in estate planning but can come into play for other purposes as well. For this reason, it is the prime focus here due to the potential impact of its use, which makes many people reluctant to make this power durable (which will be defined below). Of course, there are reasons beyond financial matters for needing a power of attorney. Pennsylvania has statutes that encompass other types of powers of attorney and that address when these powers are in effect.

For example, under Pennsylvania law, a “mental-health power of attorney” gives you the opportunity to choose someone (known as your “agent”) to make a wide range of treatment decision if you are experiencing a mental-health crisis. However, the same law also limits the lifespan of this document to two years from the date that you sign it into effect (unless you revoke it sooner or it is in effect when the two-year mark is reached). Within this time period, this power of attorney can be used by your agent when an attending physician determines that you are not capable of making decisions regarding mental-health treatment. When the attending physician decides that you can make these decisions once again, then your agent ceases to have authority.

A “health care power of attorney” is more common and often is combined with the financial power of attorney in an estate plan. Pennsylvania has a set of laws focusing solely on this legal tool and defining when it is legally relevant. A health care power of attorney is valid until you revoke it, unless you have specified a time when this document no longer is valid. It should be noted that, while it may be valid, this does not mean that it can be used by your agent named in the power of attorney at all times. Instead, it only becomes effective when the attending physician finds that you lack capacity to make these decisions and ceases to have power when the attending doctor finds that you are able to make health care decisions again.

Meanwhile, powers of attorney that deal with financial matters tend to have more variations and need to be drafted carefully to meet your objectives, leading to careful consideration of how and when they can be used. In the list of statutory powers regarding a power of attorney, you currently will find 22 powers, of which 19 are financial in nature. These range from transactions involving tangible personal property to investments in stocks, bonds, and other securities to disclaiming of an inheritance.

The potential scope and consequences of these powers can cause a principal, who is the person giving authority to her or his agent, to be hesitant to want a power of attorney in the first place. This is when you need to look at the flexibility of this document to see if one can be drafted to meet your needs and protect your peace of mind.  In the next post, a closer look at financial powers of attorney and when you might want them to be in effect for your agent’s potential use will be undertaken.

Habitability & Residential Leases, Pt 2

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Now that we will looked at what the implied warranty of habitability is in residential leases, we should look at your options for enforcement of this right. Court cases have stressed that the landlord must be aware of the circumstances before you take action to solve the problem. Because the stakes are so important (having a place to live and living in a place that is safe, sanitary, and healthy), you should provide notice to the landlord in writing. You need to describe the problem, request that the landlord fixes it, and state what you will do if the repair isn’t made. In your notice, you need to give the landlord a reasonable amount of time to make the repair.

Although a “reasonable amount of time” is hard to define, the deadline depends on how urgent the repair is. For example, a lack of heat in the middle of winter probably needs to be handled sooner than an infestation of cockroaches that’s limited to one room since bitter cold generally would be a bigger threat to health. You also need to keep a copy of the writing that you give to the landlord, and you should consider sending the letter to the landlord by certified mail, return receipt requested, in an attempt to get additional proof that you provided notice.

If the landlord lets a reasonable deadline pass without making a repair that involves habitability of your rental unit, then you can take the action that you stated in the writing to the landlord. As for what you might consider, there are some common options. ”Repair and deduct” often is a good choice. Find someone who is qualified make the necessary repair and pay for the reasonable cost of this work. Then, when you pay your rent, you deduct this cost from the rent and include documentation of the cost of the repair with this payment — provide the landlord with a copy and keep the original bill.

You might try for a court order requiring the landlord to make the repair, or you might decide to sue the landlord for rent that you paid for uninhabitable portion of your unit after the landlord knew of the breach of the warranty of habitability. Violations of the housing code that a county inspector found serious enough could give you the option of being protected by the Rent Withholding Act, but the remedies from the breach of the implied warranty usually are more comprehensive, making them more helpful.

Two final options merit mention. If a place is completely uninhabitable, then you could give notice to the landlord and move. This is risky because the landlord may sue you for breaking your lease. As mentioned before, this is why you need evidence that you should begin collecting when you have reason to believe at least some of the rental unit is uninhabitable for safety or health reasons. Photos and witnesses can help you make your case. Copies of all correspondence with the landlord about the problem should be saved as well. Proof that the landlord did not make the necessary repairs within a reasonable time also is important.

In addition, having estimates from a professional regarding the cost of the repairs can be useful as well. If you have to go to a hearing, you should ask whether the person who gave the estimate is willing to attend. She or he may not come for any number of reasons, but there is no harm in asking.

The last option to be discussed here is similar to the Rent Withholding Act’s escrow account for certain housing code violations but is a more flexible remedy for most tenants: rent abatement, in which at least a portion of the rent is placed into a separate financial account until the situation is resolved. You could attempt to estimate the portion of your residence that was not habitable and put this part of the monthly rent into the account while you take action to get the problem cleared up. You could place all rent into the account – if you do, do not touch these funds until the inevitable lawsuit is finished since you may have to pay at least some of this money to the landlord depending on the case’s outcome.

Just remember that the implied warranty of habitability always protects you in a residential lease situation, no matter what the landlord says or tries to do. Use it when you have a good reason to do so but also remember that it only applies to serious problems and not, for example, to a faucet that leaks a little. When it does apply, it can be a powerful tool providing powerful options against a bad landlord. However, you should be careful that a court is likely to see a habitability issue before you do anything. For this reason, you should consider consulting with an attorney before you act.

Habitability & Residential Leases, Pt 1

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In Pennsylvania, whenever you rent a residence – whether it is an apartment, a house, or even a mobile home – you are protected by an implied warranty of habitability. The lease can be in writing or it can be a verbal agreement – the warranty will exist. Furthermore, your landlord cannot get you to waive this right in a residential lease because it automatically exists even if it is not expressed in the lease or a landlord expressly attempts to get rid of it. It protects you, as the tenant, from being forced to live in a place that is not safe, sanitary, and healthy. This is a powerful weapon against so-called slumlords, but, like all weapons, you must understand its purpose and how to use it for it to be useful.

The implied warranty of habitability was established by the Pennsylvania Supreme Court in the case of Pugh v. Hughes in 1978, and it is through court decisions that its meaning has developed. The basic idea is that a lease is a contract, which provides obligations for landlords and tenants. A tenant is supposed to pay rent, and this action requires the landlord to provide a safe and healthy place in which the tenant lives. If either party to the lease fails to live up to her or his obligation, then the other party cannot be forced to do what would be required here – these are considered to be mutual obligations because the failure of one to live up to the responsibility relieves the other of his or her obligation.

The idea sounds straightforward but becomes more complicated as you look at the details that come along with it. Tenants who do not pay their rent face eviction. Landlords who do not make repairs do not necessarily breach their obligation to provide a habitable residence for their tenants. Habitability goes to the ability to live in a place without some type of danger to the welfare of tenants due to the condition, which was under the landlord’s control. In other words, if you caused the problem that made the condition of your residence (or some part of it) a danger to safety or health, then you cannot blame the landlord for breaching the implied warranty.

Habitability refers to livability. Examples of conditions that can prevent a place from being livable include a lack of running water, the absence of heat in the winter, the presence of rats or cockroaches, and a leak in your ceiling. However, you must keep in mind that habitability is not an all-or-nothing thing. A ceiling leak that leaves the bedroom unusable does not necessarily make the rest of an apartment or house unlivable. As we will see later, this is a factor that can affect your options when you deal with the landlord and, potentially, with the legal system.

If at least part of your residence cannot be used due to the landlord’s lack of upkeep while you have remained current with your rent payments, you are in position to move forward with enforcing the implied warranty. At the same time, you must be sure not to move to soon in implementing one of the options that a breach of the warranty would provide – there are steps to take in order to protect yourself from an action by the landlord, such as eviction, while you act to protect your rights.

When you decide that the place that you rent has some area that is not habitable due to conditions like the examples listed earlier and that the landlord is at fault, you need to do what you can to protect yourself from the landlord blaming you. You want to have evidence that the problem exists, which becomes particularly important if you end up in the legal system by your choice or your landlord’s choice. Evidence can be in the form of photos, for example. Having witnesses who would be willing to describe what they have seen also can be beneficial. You could have an inspector from the county check for housing code violations. Whether or not you take actions like these before the next step really is up to you, but you definitely would work on these and other actions if you are headed toward the legal system. The step that you must take before you pursue any options is notifying the landlord so we will look at this prior to considering your remedies and other matters in the second part of this post.

Complications While Same-Sex Marriage Is Banned in Pennsylvania

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[Note: On May 20, 2014, Judge John E. Jones III of the U.S. District Court for the Middle District of Pennsylvania actually issued the decision in Whitehead v. Wolf, in which he ruled as he anticipated the U.S. Supreme Court would rule. In short, based on the Due Process and Equal Protection Clauses of the U.S. Constitution, he determined that Pennsylvania could not justify its law banning same-sex marriages. He also entered an injunction against the enforcement of Pennsylvania’s law that was effective as of that date. The Commonwealth did not appeal so May 20, 2014 is the official date that Pennsylvania became part of the tidal wave of states across the nation that, willingly or not, recognized the legality of same-sex marriages.]

 

In Pennsylvania, same-sex marriage does not is against the law. Specifically, in the Domestic Relations Code, the legislature defines marriage as a “contract between one man and one woman” (Section 1102). Unlike its position on common-law marriage that was discussed in the previous post, it also has rejected the concept of comity, in which the laws of other states usually are recognized and respected. Instead, the legislature has invoked the “strong and longstanding public policy” exception to comity in Section 1704 of the Domestic Relations Code so that same-sex marriages, “even if valid where entered into,” are void here.

However, the U.S. Supreme Court’s decision in United   States v. Windsor, et. al. from June of this year may be the start of major changes throughout the country. Windsor dealt with the federal Defense of Marriage Act, in which Congress defined marriage as a union between a man and a woman. The case concerned two women who were married legally in Canada and then moved to New York, which recognized their marriage. The widowed spouse was the beneficiary in the Will, but the IRS forced her to pay the federal estate tax even though a spouse would have been exempt from this tax. With Ms. Windsor believing that she faced unequal treatment due to her gender, she filed the lawsuit that ended up in the Supreme Court. In what was a landmark decision to put it mildly, the Court found the federal definition of marriage unconstitutional, basing this decision mostly on due process grounds.

Marriage generally is a state-law issue. Windsor does not alter this but does affect federal rights and benefits of legally married spouses of the same gender. Changing the type of marriage found in the example in the previous post from a common-law marriage to a validly entered same-sex marriage, the couple who got married legally in Washington, D.C. can remain same-sex partners but no longer are considered spouses when they relocate in Pennsylvania.

While federal law usually supersedes state law, some issues – including marital and property rights – have been left to the states in most circumstances. This is where Windsor leaves many unanswered questions. The Social Security Administration made an effort to deal with this by issuing regulations after the Windsor decision. In the example, the SSA instructs the person who married in Washington, D.C. and then became a Pennsylvania resident to apply for benefits on the work record of her same-gender spouse when eligible because the marriage originally was valid.

Due to residency in Pennsylvania when she applies, the SSA currently will put a hold on the application, but the application does establish the protective filing date for benefits that may be paid later if the same-sex marriage that does not exist in Pennsylvania becomes valid again as it was when the couple resided in Washington, D.C. Meanwhile, had the surviving partner stayed in Washington, D.C., she could receive benefits now.

Bankruptcy law also relies on state law to define numerous rights, including property rights during marriage. Pennsylvania allows people filing for bankruptcy to choose to use federal or state exemptions for property. When a married couple owns their property as tenants by the entireties, this effectively prevents a spouse from transferring any ownership interest to a third party and generally puts the property out of reach for creditors of only one spouse. If most debt belongs to one spouse, the couple may decide that only that spouse will file, using the state exemptions to protect their joint property. However, a tenancy by the entireties can exist only when there is a valid marriage. Pennsylvania, by declaring same-sex marriage void, prohibits a same-sex couple from owning property in this way. Once again, there is different treatment at this point under federal law and under state law for individuals who, but for their genders, would be in the same situation.

Estates also are affected by marital status. Pennsylvania law gives rights to a surviving spouse preventing this spouse from being disinherited due to a deceased spouse’s Will. However, a person who entered into a same-sex marriage prior to settling in Pennsylvania becomes a virtual stranger regarding estate rights when the other person dies – the individual would not have the rights of a spouse. Instead, a Will would need to identify the person and specifically leave property to him or her (although the survivor essentially receives any part of the estate as a friend, not a spouse).

Also, Windsor provided that, regardless of gender, Ms. Windsor was a spouse and would be treated the same as other spouses under federal estate tax law, dropping her tax rate to zero percent as a result. Meanwhile, Pennsylvania’s inheritance-tax rate for a spouse is also zero percent, but, due to a same-sex marriage being void, an unrelated person of the same gender receiving property through a Will falls into the 15-percent tax bracket. In each of these situations, we see different treatment solely due to gender. Such issues will remain as long as same-sex marriage is rejected in Pennsylvania.

Next year could be a watershed year for Pennsylvania marriage law due to numerous court cases that involve possible recognition of same-sex marriages. A change could come soon after June when Whitewood v. Wolf, which directly attacks Pennsylvania’s statutory ban on same-sex marriage, is scheduled to be heard in a federal court in Pennsylvania. The ban on same-sex marriage and its resulting complications easily could be history in Pennsylvania before 2014 ends. Time – and, most likely, the courts – will tell.

The Status of Common-Law Marriage in Pennsylvania

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Until January 2, 2005, a woman and a man in Pennsylvania could consider marrying each other without any type of ceremony or written documentation. There was not even any requirement that they lived together for any amount of time, despite a common belief to the contrary. Basically, if there was no reason why they could not marry, such as being too young or being currently married to someone else, they basically needed to exchange words in the present tense – without even needing witnesses – showing that they intended to establish the relationship of wife and husband, and a common-law marriage was created.

A marriage created in this way could create difficulties when one had to prove the date of the marriage or, even, its very existence. As a result, courts made an issue of the problems with marriages that could exist without any documentation. A 1998 decision from the Pennsylvania Supreme Court made clear that the common-law marriage certainly was disfavored but that the legislature would have to act to abolish the practice. Then, in 2003, due to the lack of legislative action, the Commonwealth Court took it upon itself to act in place of the legislature and decided that common-law marriage no longer existed in the Commonwealth of Pennsylvania. Unfortunately, all that this really did was to create more confusion.

With a Pennsylvania court saying one thing and the legislature saying nothing, the government needed to clarify what the law really was. Finally, the legislature passed a statute preventing anyone from attempting to create a common-law marriage beginning with the day after New Year’s Day in 2005. This did not invalidate such unions that took place through January 1, 2005, thereby ensuring that a possible common-law marriage that either the man or the woman involved asserted had occurred prior to the cutoff date still could prove troublesome. However, even with Pennsylvania’s abolition of the right to enter into a common-law marriage, problems caused by this concept remain.

Beyond the difficulties presented by a possible common-law marriage created in Pennsylvania prior to the beginning of 2005, there are problems because some states continue to permit a woman and a man to enter into this type of marriage at this point. They include Alabama, Colorado, Iowa, Kansas, Montana, New Hampshire (for inheritance purposes only), Rhode Island, South Carolina, Texas, Utah (which does add the requirement of an administrative order regarding the marriage), and Washington, D.C.  A com威而鋼
mon-law marriage from any of these states eventually could have an impact in Pennsylvania. While the reason often is thought to be the Full Faith and Credit Clause of the federal Constitution, this is not involved. Instead the concept of comity is the cause.

Through comity, states generally recognize and respect the laws of other states as long as the law is not deemed offensive to public policy in a particular state. Since Pennsylvania has long favored the institution of marriage (between men and women), it continues to recognize common-law marriage, despite the problems with proof that led to practice being abolished here, as long as the marriage occurred in one of the states where it was valid. Although it could not be created here, public policy in Pennsylvania favors marriage so it remains valid as long as it was valid from its beginning.

Therefore, a woman and a man could enter into a common-law marriage in Washington, D.C. in 2011 and then move to Pennsylvania. If the marriage was valid in the District of Columbia, the comity doctrine continues its validity here.

This means that these spouses will have the same rights and obligations that other married couples have in Pennsylvania. They will remain married until death – or until a divorce. While entering a common-law marriage has none of the formalities of a ceremonial marriage, its ending can occur only in the same way that any other marriage can end. Because a divorce is required while both spouses are alive, there can be equitable distribution of marital property. Meanwhile, the death of one of the spouses leaves the other with the same inheritance rights as any other surviving spouse in Pennsylvania has.

In addition, because the marriage is valid, there are rights to payments from the Social Security Administration that can vest when a spouse retires if they have been married for at least ten years. A common-law marriage also affects a bankruptcy. If one spouse basically has all of the debt while property, such as a residence, is owned as tenants by the entireties in Pennsylvania, then the bankruptcy law can be used to protect the house, with only the spouse with the debts filing for bankruptcy to get a fresh start by having these debts discharged. The marriage may have begun elsewhere, but – by the time that the couple has arrived in Pennsylvania – the fact that it was a common-law marriage in the beginning is of no consequence, regardless of Pennsylvania’s abolishing the right to enter into such marriages years ago.

In the next post, we will see another married couple that relocates from Washington, D.C. to Pennsylvania but finds the consequences much different. Instead of a common-law marriage, we’ll look at a couple that has gone through a ceremonial marriage after obtaining a marriage license, making the marriage much easier to prove. This won’t matter once they move to Pennsylvania, where they will be treated as if they virtually are strangers to one another. Their “problem” is that they happen to share not only their lives but also the same gender. The evolving area of law of same-sex marriage and its current (and possible future) implications in our changing society will be examined.