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Arkansas Same-Sex Couples Face Unfair Tax Consequences in Divorce

| May 24, 2012 | Domestic Partnerships, Firm News

In Arkansas, as in many other states, same-sex couples are not allowed to get married. As a result, they are denied many of the rights and benefits that are afforded to opposite-sex couples. Same-sex couples face significant hurdles when it comes to adoption, child custody, inheritance, taxes and many other areas that opposite-sex couples often take for granted.

The disparities in the law can feel most acute when a long-term same-sex relationship breaks up. While Arkansas law provides an orderly process to dissolve opposite-sex marriages, gay couples have relatively few rights. This is especially true when it comes to taxes and property division.

As a result, it is often much more expensive to dissolve a long-term same-sex relationship than an opposite-sex marriage.

For example, tax law places no limit on the amount of money or property that can be transferred between legally married spouses. Gift and income taxes simply don’t apply. So, if a legally married couple chooses to divorce, one spouse can transfer property or financial accounts to the other spouse without having to pay taxes.

This isn’t true for same-sex couples. Since they are not legally married, partners must pay gift takes on any property transfers that exceed $13,000 in one calendar year. Take, for example, a situation in which a gay couple purchases a home together and then later decides to break up. If one partner wants to give the other partner his share in the home, he will likely have to pay a significant amount of money in gift taxes. If he decides to sell his share to the other partner, he will have to pay income tax on the proceeds. An opposite-sex couple would have been able to make this transfer for free.

This is just one of the many problems that a “divorcing” same-sex couple will encounter. In many cases, an experienced family law attorney can help ex-partners navigate their split and help reduce the damage that comes from a lack of legal protections.

Source: Forbes, “Biggest Injustice of Denying Same-Sex Marriage? Tax Free Divorce,” Robert W. Wood, May 10, 2012.

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