Don't Bet the Business

Now that the United States Supreme Court has rendered its historic decision in Obergefell v Hodges, upholding the constitutionality of same sex marriage, a number of federal and state laws will need to be modified to accommodate this new reality.  Among them are the United States Bankruptcy Code and related statutes that frequently arise in bankruptcy proceedings. 

Pursuant to the Bankruptcy Code, 11 USC §302, a joint case can only be filed by an individual debtor and that debtor’s spouse.  While “spouse” is not a defined term under the Bankruptcy Code, 11 USC §101, the courts have interpreted the word “spouse” to mean a “husband” or “wife.” The courts have previously denied joint petitions by same sex couples, ruling that they are not “spouses.”  Now that same sex marriage is not only legal but a protected Constitutional right, one must ask whether same sex couples can file a joint petition with one of the debtors termed a “spouse.” 

Another area in which property rights arise is in the area of exemptions. Some states, like Michigan, allow persons filing for bankruptcy to elect either in the Michigan list of exemptions or the federal list of exemptions found in 11 USC §522.  Indeed, Michigan has its own special list of exemptions for those filing for bankruptcy, exemptions that are not available for individuals not in bankruptcy.  The “Michigan” list of exemptions is more liberal and modern than the exemption list found in the Bankruptcy Code. Specifically, MCL 600.5451(n) references an exemption of real property and certain personal property held by a “husband” and “wife.” Will the Michigan law need to be amended? Likewise, MCL 600.5451(o) references the surviving “spouse” when the owner of a homestead dies. This definition takes on a new sense of ambiguity after the Supreme Court’s ruling.

Michigan also is one of the few states that recognize property of a “husband” and “wife” held jointly in the form of a tenancy by the entirety. In Michigan, with the exception of the IRS, only a creditor of both a “husband” and “wife” can reach the equity in entireties property. However, as the law is currently interpreted, only those holding real property as a “husband” and “wife” can enjoy this protected status. Now that same sex marriage is Constitutional, Michigan may have to amend its real property laws and exemptions to provide that property jointly held by a same sex couple is likewise protected by the law governing entireties properties.

Further, Michigan has a special statute, MCL 557.151, providing that certain forms of personal property such as stocks, bonds and other evidence of indebtedness can be held jointly by a “husband” and “wife” in the same manner as entireties real property. As applied under §151, such personal property is only reachable by creditors if there is a joint debt owing by both “spouses.” Now that marriage is legal between same sex couples, §151 may need to be changed to broaden the scope of this special personal property treatment. 

Michigan also retains the rights of dower for widows, but has abolished the rights of curtesy for widowers. After the Supreme Court’s ruling, Michigan may need to rethink the scope of “dower,” or perhaps, eliminate it altogether as the right of curtesy was long ago.

After the Obergefell decision, Michigan, along with the other states, was thrust into a world of unchartered waters. The Bankruptcy Code, as well as Michigan common law and a plethora of state statutes will need to be reviewed and possibly changed to keep pace with reality of same sex marriage. This new reality entitles same sex couples to enjoy the benefits and burdens of marriage, including the rights and duties granted to debtor and creditors. It’s now time for the courts and our legislators to catch up.