10 posts categorized ""Spouse""

Same-sex relationships and angel investing

Encouraging to see the US Treasury Department and the Internal Revenue Service rule "that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes."

"However," the government press release goes on to state, "the ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law."


We took a different approach for StartupEquality.org. For purposes of ending discrimination against gay, lesbian and transgender persons in the rule set for angel investing in the United States, we propose that domestic partnerships, civil unions, and similar relationships recognized by state law should count. 

Here's the regulatory recommendation submitted today to the SEC by StartupEquality.org:

A spouse of a natural person shall mean another person, regardless of gender or sexual orientation, whose relationship with the person specified: (1) may be characterized as such person's (i) husband, (ii) wife, (iii) spouse, (iv) domestic partner, or (v) designated beneficiary under any applicable state law for the purpose of ensuring that each person in a two-person relationship has certain rights or financial protections based upon such designation; or (2) is that of the other party to a civil union with such person.

The recommendation is part of a comment letter signed by 58 people who are, in the words of the petition, "business persons; members of angel groups, trade associations and advocacy groups; partners and associates of venture capital funds; startup founders; individual angel investors; and other persons interested in the health and vibrancy of America's startup ecosystem."

The comment letter has been submitted in connection with the SEC's open call for public comment on changes to Regulation D, which is the foundational rule set for the startup financing ecosystem in the United States.

One thing the StartupEquality.org petition might have done, but didn't, was cover the point covered in the Treasury/IRS ruling - namely, that a valid marriage for purposes of the accredited investor definition stands up, regardless of the law in the jurisdiction in which the given investor resides. But I am glad we chose to say that civil unions, domestic partnerships, and similar relationships should count.

I'll update this post when the comment letter is posted to the SEC site. It usually takes a few days.

Update 09/05: the letter is up on the SEC site already! Here is the link.

Photo: King County, WA / Flickr.


Remember a couple months back when we were talking with Doug Cornelius about the sexual orientation discrimination inherent in the spousal standard of the accredited investor definition?

Well, Dan Shapiro, Joe Wallin and I have launched a campaign to do something about that gross and senseless inequity.

CaptureThe campaign is called Startup Equality and our petition is posted at startupequality.org.

Any time is always the right time to do what is right. In this case, the timing is also fortuitous. Not only has the Supreme Court recently overturned DOMA, but in a release proposing new Reg D rules, the SEC has specifically requested public comment on the accredited investor definition.

The spousal definition is wrong, but it can be fixed. Here's what we propose:

"A spouse of a natural person shall mean another person, regardless of gender or sexual orientation, whose relationship with the person specified: (1) may be characterized as such person's (i) husband, (ii) wife, (iii) spouse, (iv) domestic partner, or (v) designated beneficiary under any applicable state law for the purpose of ensuring that each person in a two-person relationship has certain rights or financial protections based upon such designation; or (2) is that of the other party to a civil union with such person."

It's gratifying to see, too, David Rose, Mark Suster, and others weighing in already on the issue. See this piece in the Wall Street Journal.

For more background on how DOMA, the Supreme Court and state laws frame this issue, see this seminal post on Doug Cornelius' blog, DOMA, the SEC, and the Accredited Investor, and earlier posts I've now collected under the "Spouse" tag.

Please check out startupequality.org and sign the petition.

Liveblogging SEC Webcast - Tweeting for Investors (of the "Verified Accredited" Variety)

William Carleton and Joe Wallin live blog the SEC Open Meeting webcast on Wednesday, July 10.

Update 12:22 Pacific: here are links to the various rules, now posted:

This meeting is about:

  • lifting the ban on general solicitation in Rule 506 offerings limited to accredited investors (angels);
  • "verification" of accredited investor status;
  • changes to Form D (the filing that is made in connection with most startup offerings); and
  • "bad actor" rules for startup investing.

Recent posts on this blog, anticipating today's meeting:

Might civil unions count when applying the "combined with spouse" accredited investor thresholds?

Still thinking about Doug Cornelius' post on what happens to the accredited investor definition following the Supreme Court's overturning of Section 3 of the Defense of Marriage Act. In particular, whether a party to a civil union is a "spouse" for purposes of the accredited investor definition under Rule 501 of Regulation D.

We know that parties to marriages count as spouses. Full stop. The SEC need not engage in rulemaking on this point, as the reference to "spouse" in Rule 501 reverts back to its natural meaning, now that the attenuated and mean-spirited gloss imposed by Section 3 of DOMA has been stricken down for violating the US Constitution.


But might parties to other domestic relationships also be "spouses" for purposes of meeting the accredited investor standard?

Doug's post cites an Illinois statute which appears to say that parties to a civil union in that state must be legally regarded as "spouses" to one another.

I'm no expert on the Illinois civil union statute, but this statement of "purposes" and "rules of construction" in the Illinois Religious Freedom Protection and Civil Union Act, Section 5, suggests that in Illinois, at least, a person in a civil union is a "spouse" to her or his partner in the union:

"This Act shall be liberally construed and applied to promote its underlying purposes, which are to provide adequate procedures for the certification and registration of a civil union and provide persons entering into a civil union with the obligations, responsibilities, protections, and benefits afforded or recognized by the law of Illinois to spouses."

(Emphasis added.)

Now, I understand that many people in Illinois are challenging the state's continuing ban on same-sex marriage as a violation of the state constitution. See this complaint and this webpage, "How Civil Unions Have Failed."

It's been not even a week since the Supreme Court's decision on DOMA, and I've already heard hours of analysis - most of it really good - on Justice Kennedy's opinion, how it is going to be quoted and cited in state court challenges, like the one brought in Illinois, to overturn bans on same-sex marriages.

But whatever the destiny of the opinion in Windsor for shaping the legal recognition and equal protection of same-sex marriage across the United States, the holding of the case really only requires the federal government to honor and give effect to what states have to say about who can and cannot be married. The federal government has no business demeaning a marriage that is lawful.

The holding (in contrast, perhaps, to the broader discussion in the opinion that speaks to equal protection) of the case is so centered in federalism, that it may actually be necessary for the federal government to defer to laws, like Illinois', which, while withholding marital status from same-sex couples, nevertheless expressly confers spousal status on the partners.

In Illinois, at least, I think the better argument may well be that a party to a civil union may indeed combine her income or net worth with that of her civil union partner - her spouse, according to Illinois law - when meeting the accredited investor definition. It would be great to engage with an Illinois lawyer on this point.

Photo, "Illinois Governor Pat Quinn with Newlyweds Jim Darby and Patrick Bova," by John W. Iwanski / Flickr.

Doug Cornelius on the accredited investor definition post-DOMA

Important post this week from Doug Cornelius, weighing in on what happens to the accredited investor definition, following the Windsor case: "DOMA, the SEC, and the Accredited Investor."

Doug's core analysis is that the SEC need do nothing to extend the benefits of the marital accredited investor standard to persons in same sex-marriages:

"The US Supreme Court decided that Section 3 of the Defense of Marriage Act is unconstitutional. Therefore, the accredited investor definition’s use of the word 'spouse' is no longer restricted by DOMA to a person of the opposite sex who is a husband or a wife.

"In the states that allow same-sex marriage, an issuer should now be able to allow a same-sex married couple to combine their income to meet the standard. I don’t think the SEC needs to take any action for this to happen."

Doug also takes up the question of whether persons in civil unions in states that designate the participants as "spouses" will be spouses for purposes of the SEC rule. He references an Illinois statute that just so designates.

6a01156e3d83cb970c0192abcdde0d970d-800wiLastly, Doug wonders if the question of civil union partnerships might be dealt with in the SEC's overdue rulemaking (it's going to happen sometime, isn't it?) to lift the ban on general solicitation in Rule 506 deals limited to accredited investors.

Part of that rulemaking involves setting heightened standards for accredited investor "verification."

I had not thought about this before Doug's post, but is it possible that "verification" will require issuers to look into the scope of a given investor's domestic relationship? Crazy. More reason that the SEC should interpret "spouse" more broadly than the Supreme Court's Windsor holding requires!

Leave it to Doug to identify new dots by connecting them.

Image: Arthur T. Bens / Flickr.

Sexual orientation and angel investing

Here's where angel investing stands after the decision of the US Supreme Court yesterday in United States v. Windsor.

Sexual orientation is less relevant today for angel investing than it was on Tuesday.


This is because the Court struck down Section 3 of the federal Defense of Marriage Act (DOMA) as unconstitutional.

But, unfortunately, sexual orientation remains relevant to whether one can qualify to be an angel investor. This is because the Court's ruling appears to eliminate sexual orientation discrimination only with respect to angels who are legally married. It yet appears that individuals in same-sex relationships who are not allowed to marry, may need to meet a higher standard than do individuals who are legally married.

Doesn't the SEC, in light of the Court's decision, need to revisit Rule 501 of Regulation D before persons in same-sex marriages are treated the same way as persons in heterosexual marriages? I don't think so. I'm hearing and appreciate the media stories about how it may take some time for the executive branch of the federal government to fix various rules and policies in order to bring them into conformity with the Court's ruling, but, the Court's ruling on DOMA is self-executing with respect to the accredited investor definition for anyone who is married, regardless of gender.

"Spouse" under Rule 501 of Reg D now means any person with whom the potential accredited investor is married, full stop. The attenuated, mean-spirited and discriminatory gloss of DOMA previously overlayed on the definition of “spouse” is now gone.

Less clear, however, is whether couples in civil unions are "spouses" to one another. For someone who is part of a couple who wish to be married, but state law doesn't permit them to be, he or she may yet be shut out of the ability to combine income or net worth to meet what is effectively a lower accredited investor standard for married (now, regardless of gender) couples.

Photo: Ted Eytan / Flickr.

The accredited investor definition, after the Supreme Court strikes down DOMA

We're going to adjust tactics in the startupequality.org campaign, working off the premise that the Supreme Court will strike down DOMA sometime this month.

None of us are professional Court prognosticators, but, surveying the predictions of some of those who are, we are presuming that the Court will hold that the federal statute cannot override the policies of the various states as to who may and may not marry.

4906298122_8b9b36d8c0_zThis means, we think, that "spouse" for purposes of federal laws and regulations will have to mean any person's spouse in any marriage, regardless of that person's gender. (Right now, because of DOMA, "spouse" under federal law has an attenuated and openly discriminatory definition, expressly requiring that a "spouse" be of an opposite gender.)

With respect to high net worth individuals in same sex marriages, the overturning of DOMA in such a manner probably solves the problem: "spouse" under SEC Rule 501 of Regulation D will simply have a natural and intuitive meaning. If you're married, you're married.

Less clear are those situations where the legal relationships between same sex partners are something other than marriage. These legal relationships include, but probably are not limited to, domestic partners, designated beneficiaries, and parties to a civil union.

We think that, immediately following the overturning of DOMA, the SEC should issue an interpretive release or guidance, to the effect that, for all purposes of the accredited investor definition, "spouse" will include not just spouses in marital relationships, regardless of gender, but also domestic partners, designated beneficiaries, parties to a civil union, and all other persons to whom any applicable law (federal, state or local) extends economic benefits.

Photo: HystericalMark / Flickr.

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