Special Considerations for Gay and Lesbian Couples
Lack of legal same-sex marriage
As a gay or lesbian couple, legal marriage is currently not available to you in most states. While opposite sex couples may choose not to marry, you actually don't have a choice. As a legally unmarried couple, you lack many of the protections and benefits the law extends to married couples. You must create your own safeguards, like any other unmarried couple. A domestic partner agreement supplemented with other legal documents, such as a will or living trust, durable powers of attorney for health care and finances, and parental rights agreements, may currently be the best approach to protect your rights.
Tip: Massachusetts currently authorizes same-sex marriages between its residents, and Vermont, Connecticut, and New Jersey allow gay and lesbian couples to "marry" in civil union ceremonies. Partners in these relationships gain all the benefits and protections of marriage that these states confer (e.g., inheritance, property ownership rights), but benefits and protections governed by federal law (e.g., Social Security) aren't affected.
Possible need to plan for a higher level of financial resources
In addition to the usual financial planning challenges all couples encounter, if you lack familial or community support you may face some additional concerns. You may want to plan for a higher level of financial resources to see you through a crisis, a period of disability, or to cover co-payments and deductibles in case of a serious long-term illness. You may also want to consider purchasing disability insurance that replaces a higher-than-average proportion of income, although the tradeoff may be a longer waiting period before benefits start.
Health insurance considerations
A growing number of employers now offer domestic partner benefits to the domestic partners of their unmarried employees. One of the most important of these is health insurance. However, the value of benefits your employer offers to your partner is taxable to you as income, unless your partner qualifies as your dependent for federal income tax purposes. You need to weigh the costs versus the benefits to see if a domestic partner benefit plan is a good deal for you and your partner.
Estate planning considerations
As a partner in a gay or lesbian couple, you may have reason to be concerned about whether your wishes will be respected after death. Even good people act strangely and unpredictably when confronted with death. Your family members may experience added ambivalence or even hostility about your sexual orientation and your same-sex relationship. You might want to keep as much of your estate as possible out of the court system. You may also wish to take steps to minimize the risk of a will challenge. A domestic partner agreement can support your estate planning documents by clarifying your wishes.
Parental rights considerations
You must take extra legal precautions to protect your parenting rights. You can protect your parenting rights with key legal documents and bolster them by discussing your arrangements with the significant adults in your child's daily life.
Tax laws involving dependents, filing status, credits, and deductions may apply to you and your relationship in some unique ways.
You lack the protections and benefits of legal same-sex marriage
Most states do not recognize same-sex marriages or civil unions
One of the most significant issues you face as a gay or lesbian couple is that you lack the rights and protections of legal marriage. Because marriage is a state-sanctioned contract, the lack of legal marriage means you are ineligible for the many protections and benefits the state extends to married couples. On the state level there are anywhere from 160 to more than 250 laws per state that govern and protect married partners. However, there are many laws that prohibit same-sex relationships. Although opposite-sex couples may choose to remain unmarried, you and your same-sex partner generally don't have any other option. You may only marry in the state of Massachusetts, or you may enter into a civil union in Vermont, Connecticut, or New Jersey.
The federal government doesn't recognize same-sex marriage
You're also ineligible for the many benefits the federal government grants to married federal employees and military personnel. In addition, the Defense of Marriage Act (DOMA) prevents the federal government from recognizing same-sex unions for federal purposes, such as taxes, job benefits, and immigration. This law also allows a state to ignore a same-sex marriage that is approved in another state. Although proponents of same-sex marriage believe the DOMA is unconstitutional, the legal and political maneuvering on both the federal and state levels could go on for years.
Rights and protections you lack
If you're unable to marry or enter into a civil union, you lack some of the rights and protections that married persons have in nearly every aspect of life, including the following:
- Property ownership
- Separation or termination of a relationship
- Parental rights
- Inheritance and estate planning
- Illness and incapacity
What you can do until legal marriage becomes available
There is no adequate replacement for legal marriage. Substitutes, such as domestic partner registration and ceremonial marriage, don't come close to offering the advantages of legal marriage. Common law marriage is not available to same-sex couples. Your best approach is to prepare a domestic partner agreement supplemented with other legal documents.
Domestic partner agreement supplemented with other legal documents
You and your partner can prepare a domestic partner agreement supplemented by other legal documents. A domestic partner agreement primarily addresses the sharing of income, expenses, and property. It can also delegate responsibility for nonfinancial matters, such as who will handle various household duties (although courts tend to provide only limited remedies for personal service agreements).
Caution: Because a domestic partner agreement primarily covers the sharing of income, expenses, and property, it doesn't address the many other areas requiring protection. In order to provide more complete legal coverage, you should supplement it with the following documents:
- Durable power of attorney for health care (DPAHC), also called a health-care proxy
- Durable power of attorney for finances
- Will or living trust
- Parental rights documents
- Living will, may also be called a Declaration of Desires
Caution: This approach of combining a domestic partner agreement with other legal documents is your best option, although it doesn't begin to provide the benefits and protections of legal marriage. Preparing these documents can cost hundreds of dollars in legal fees, possibly more for trust-based plans, and they must be periodically reviewed and updated as your circumstances change. Seek the help of an attorney in drafting these documents. They may need to be notarized or witnessed, and all can be contested in court. For more on this topic, seeDomestic Partner Agreements.
Domestic partnership registration
A domestic partnership registration provides official recognition of your union. A growing number of cities allow domestic partner registrations, and a few states have begun to recognize them. They generally require you and your partner to sign an affidavit declaring your relationship and to pay a small fee of perhaps $35 or $45—approximately the same cost as a marriage license.
Apart from the satisfaction of publicly announcing your relationship, a domestic partner registration offers few if any benefits. Moreover, it may expose you to liability for your partner's debts. Be sure to examine your rights and responsibilities before registering. Because of their relatively recent introduction, it's unclear how domestic partner registrations will fare legally.
Many churches marry same-sex couples. However, while these ceremonies may be personally gratifying, they confer no legal rights or responsibilities.
Common law marriage
Common law marriage, currently recognized in 11 states and the District of Columbia, is specifically not available to same-sex couples.
General financial planning considerations
Need to plan for greater financial resources
In addition to the usual financial planning challenges all couples encounter, if you lack familial or community support you may face some additional concerns. If you're estranged from your families, lack children, or have no community to turn to in times of need, you may want to plan for a higher level of financial resources to see you through a crisis or an extended period of disability.
It's generally recommended that everyone set aside three to six months of cash in an emergency fund. If you have limited sources of support to draw on in a crisis, you may want to consider setting your cash reserves at the high end of the range.
In case of disability
A disability insurance policy replaces a portion of your income if you're unable to work due to a serious medical condition. The percentage it replaces varies from policy to policy. In estimating how much income you would need to replace, consider the other sources of support you could rely on if you become disabled. If you're not sure where you'd turn in a crisis, you may want to purchase disability insurance that replaces a higher-than-average proportion of income to pay for the support you may need, although the tradeoff may be a longer waiting period before benefits start. For more information, see Disability Insurance.
Health insurance considerations
Domestic partner benefits are taxable
A growing number of employers now offer domestic partner benefits to the unmarried partners of their employees. For many people, the most important benefit is health insurance. Before your partner signs up, there is one big drawback to consider: The value of the benefits your employer offers to your partner, unlike those offered to a spouse, is generally taxable (unless your partner qualifies as your dependent for federal income tax purposes). It shows up as income on your pay stub and also on your year-end W-2 Form.
Comparing costs of coverage under a domestic partner benefits plan to your own employer's plan
If you have access to health insurance through your own employer and you can obtain coverage through your partner's domestic partner benefits plan, which is the better deal? In this case, compare the annual costs of each plan before selecting coverage. You may find that the additional tax on the domestic partner coverage prompts you to select your own employer's plan.
Example(s): Terry's employer, Ace Company, has just begun to offer health benefits to its employees. Terry compares the annual cost of health benefits at Ace to the yearly cost under Chris's domestic partner benefits plan at Progressive Inc., as follows:
|Terry's annual share of the premiums|
|+ Est. deductibles/co-payments for doctors|
|+ Est. deductibles/co-payments for medication|
|= Total est. annual out-of-pocket cost for Terry|
|+ Total additional tax per year for Chris|
|+ Total est. annual cost of Terry's benefits|
|Total annual savings under Ace's plan|
Although Terry's annual premiums are higher at Ace Company ($800 compared to $600), the total yearly cost is $172 lower because he and Chris avoid the tax on the domestic partner benefits. Since the coverage under both plans is comparable, it's a better deal for Terry to join Ace's health insurance plan.
Estate planning considerations
Don't take anything for granted
Estate planning is an important activity for any couple. As a partner in a same-sex couple, you may have even more reason than a partner in an opposite-sex couple has to be concerned about whether your wishes will be respected after death. Even good people act strangely and unpredictably when confronted with death. Your family members may experience added ambivalence or even hostility about your sexual orientation and your same-sex relationship. Without the proper protections, your surviving partner could be ordered out of a house you share, your next of kin could dispose of your estate in a way you would not approve, and your family might not honor wishes they had agreed to before your death. Don't take anything for granted. Get your estate plan in order now. You owe it to yourself and your partner to ensure that your estate is transferred according to your wishes.
Planning for illness and incapacity
You should also take the time now to plan for possible illness or incapacity. If you are seriously ill or injured and can't express your wishes or make your own medical decisions, who would you want to represent you? Medical personnel often look to immediate family members for authority to act. Your unmarried partner may be forced to stand on the sidelines while medical decisions are made. He or she may even be barred from visiting you if you're in intensive care. If you want your partner to represent you in case of serious illness or incapacity, you should prepare a DPAHC (also called a health-care proxy) and a living will.
Transferring your estate
There are four ways in which you can transfer your estate to your surviving partner:
- Automatically, by holding property in joint tenancy with rights of survivorship (JTWROS). This can apply to any property with a title, such as real estate, vehicles, bank accounts, stocks and bonds, and mutual funds. For more information, see Property Ownership Issues That Concern Unmarried Couples.
- By designating your partner as the beneficiary of your life insurance policy and/or retirement account.
- Through the provisions of a living trust.
- Through a will using the probate laws of your state.
- Any property that isn't transferred through joint ownership, a beneficiary designation, or a trust passes through probate. The probate court handles estates that have wills, as well as those without wills that pass according to the intestacy laws of your state.
Although probate courts today are more apt to honor bequests from one gay person to another, it wasn't that long ago that there was a risk that they would be invalidated on the grounds of "undue influence." If you're concerned about the court system having jurisdiction over the distribution of your assets, you might want to keep as much of your estate as possible out of probate. You can do this by using joint ownerships, beneficiary designations, and trusts to transfer assets. Another reason to avoid probate is that the proceedings are a matter of public record, open to anyone who inquires.
Any assets that cannot be transferred through joint ownership, a beneficiary designation, or a trust should be covered by a will. Otherwise, they will pass to your next of kin according to the intestacy laws of your state. Probate courts generally respect wishes outlined in a properly executed will. A successful will challenge is hard to mount. Someone contesting your will must prove that it was executed incorrectly, that you were unduly influenced or not of sound mind when you made it, or that it was the result of fraud. However, since your estate is already in court when it enters probate, the threat of a will challenge from a hostile or disapproving family member can cause a lot of anxiety for your loved ones.
Reducing the risk of a will challenge
If you are seriously concerned about a will challenge, pass as much of your estate through the probate-avoiding mechanisms discussed above—JTWROS, beneficiary designations, and living trusts. For your remaining assets, you can take the following steps to reduce the risk of a will challenge:
- Mention every member of your family in your will. If you're disinheriting someone, state the reason. However, this must be carefully worded to prevent a challenge or a defamation suit. A will challenge is most likely to come from a disinherited family member.
- Add an "in terrorem" ("no contest") provision to your will. This means that anyone who contests your will gets nothing at all.
- If you have a debilitating illness, prepare your will early to ensure that there's no question that you're "of sound mind and body."
- Make sure that your will is executed properly. If your surviving partner is inheriting the bulk of your estate, he or she should not be present when you execute the will. This prevents a disgruntled family member from later having grounds to claim undue influence.
- Share your plans with your family in advance. Avoid having your death be the occasion on which you "come out" to them. The shock of your death combined with the surprise of learning about your lifestyle can be doubly difficult for unsuspecting family members to handle. Communication now can prevent problems in the future when you're no longer here to explain your wishes for the disposition of your estate. If you can't come out to key family members, try to find at least one member in whom you can confide and who will verify your wishes if your will is contested.
Support your estate plans with a domestic partner agreement
A domestic partner agreement can support your estate planning documents, whether they are joint ownership property titles, beneficiary designations, trusts, or a will. By referencing these documents and restating your intentions for the distribution of your estate, you clarify your wishes in case they're questioned. See Domestic
For more information for unmarried couples
For more information on estate planning for unmarried couples, refer to Estate Planning Issues That Concern Unmarried Couples.
Parental rights considerations
As an unmarried parent, you must take extra legal precautions to protect your rights. Parenting rights that are automatically conferred on married couples don't necessarily apply to unmarried parents. For example, you may not be allowed to authorize emergency medical treatment for your partner's child. You're not automatically granted custody or visitation rights to your partner's child if the relationship ends. You don't automatically become the legal guardian of your partner's child if your partner dies, no matter how long you've raised the child. If you're an unmarried father, you may not even be recognized as your biological child's legal parent.
Child custody concerns
Many states now allow same-sex couples to share custody of a biological child as long as one of you is the custodial parent. You can also share custody of an adopted child, although most states require one of you to have custody before the other can apply for it. Unfortunately, this prevents you both from adopting at the same time and requires you to go through the costly and lengthy adoption process twice.
Key legal documents
You can protect your parenting rights with key legal documents. These include your child's birth certificate, a paternity statement, a co-parenting agreement, a nomination of guardianship clause in a will, and a form authorizing consent to medical treatment. Bolster these legal documents by discussing your arrangements with the teachers, medical-care workers, recreation leaders, and others in your child's day-to-day life. For information on the legal documents you can use to protect yourself, see Parental
Rights Issues That Concern Unmarried Parents.
In many ways, the federal tax code treats you, as an unmarried couple, differently from a married couple. Issues applying to all unmarried couples are covered in Tax
Issues That Concern Unmarried Couples. In addition, some other situations may be of special interest to you.
Claiming your partner as a dependent for the personal exemption
Although it's possible to claim your partner as a dependent for purposes of the personal exemption, this is generally difficult to do because in addition to other requirements, he or she must earn less than the personal exemption amount ($3,400 for tax year 2007; $3,300 for 2006).
Also, this strategy penalizes your partner. By claiming your partner as a dependent, he or she is then ineligible to claim a personal exemption when filing his or her tax return. Further, if your partner claims the standard deduction, it may not exceed the greater of $850 or his or her actual earnings plus $300.
Qualifying as head of household
The head of household filing status is very advantageous for those who qualify. However, you may find it difficult to qualify, even if you can claim your partner as a dependent for purposes of the personal exemption. Heads of household must generally be related to their dependents by blood, marriage, or adoption. The qualifications are fairly strict, and because of the beneficial tax treatment, the IRS monitors this closely.
Domestic partner health benefits are taxable
The value of health insurance your employer provides to your partner under a domestic partner benefit plan is taxable to you as income (unless your partner qualifies as your dependent for federal income tax purposes). In contrast, benefits provided to a spouse are not taxable. For more information on this topic, refer to Insurance
Issues That Concern Unmarried Couples, or refer to Health Insurance Issues above.
Deducting your partner's medical expenses
You cannot claim deductions for your partner's medical expenses unless he or she qualifies as your dependent.
RPS is a registered investment advisor for Virginia, Maryland,
the District of Columbia. This web site is not a solicitation to sell
investment advisory services outside those areas, except where such
registration is not required. This site is for information only and
should not be construed as a vehicle to deliver advice for any investor
or individual. RPS delivers advice only after we provide clients a
copy of our registration document (FORM ADV) and our contract has been
executed. Information throughout this site pertaining to market or
other financial data is obtained from sources that RPS considers reliable.
RPS does not warrant or guarantee the timeliness or accuracy of this
References made to investment or portfolio performance are based on
historical data, and there is no guarantee of such performance in the