Planning Concerns of Unmarried Couples

New Jersey recently passed legislation allowing civil unions, granting same-sex couples the same rights and privileges as married couples under state law. It now joins just a handful of states that recognize same-sex partnership rights. Though many of their planning concerns are not unique, same-sex couples need to know where the gaps are, and what extra protections they can put in place.

As an unmarried couple, you lack many of the legal protections and advantages that married couples automatically receive. For example, divorce laws don't apply to you, tax laws treat you differently, and government and employer-provided retirement plans may not recognize your relationship. You face many issues involving money, insurance, property ownership, parental rights, estate planning, and taxes. If you are a gay or lesbian couple, you face additional issues in all these areas. Although opposite-sex couples may be unmarried by choice, gay or lesbian couples in most states have no alternative, since marriage for same-sex couples is not yet legal in most states. Because of the many issues you, as unmarried partners, face, you need to take extra steps to secure a solid financial future for your partner and yourself. You must create your own legal safeguards through domestic partner agreements, property ownership as joint tenancy with rights of survivorship, wills, living trusts, powers of attorney for health care and finances, and documents to safeguard your parental rights.

Tip: Massachusetts currently allows 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 will gain all the benefits and protections of marriage that their respective states confer (e.g., inheritance, property ownership rights, etc.), but benefits and protections governed by federal law (e.g., Social Security) aren't affected.

Domestic partner agreements
Few, if any, laws govern your rights and responsibilities as an unmarried couple regarding the sharing of income, expenses, and property. If your relationship ends, there are no uniform guidelines to sort your commingled finances and divide your shared property. You can't turn to a divorce court as a married couple can. If any of the following situations applies to you, you may want to consider a domestic partner agreement:

• You want to protect your income and property rights in case of separation or death
• You have more than a minimum of assets
• You expect to commingle your finances, perhaps by purchasing household goods or other property together, sharing income, or holding joint bank accounts or credit cards
• You want your relationship to run smoothly with a clear understanding of your financial rights and responsibilities

A domestic partner agreement is a written contract between you and your partner that supports your ownership rights and clarifies your intentions for the distribution of your property if you die or your relationship ends. For more information, see Domestic Partner Agreements.

Money issues that concern unmarried couples
If you combine your finances and your relationship ends, no divorce courts or uniform guidelines exist to separate your commingled assets. Your relationship lacks many of the legal safeguards that protect married couples. Before combining your finances, take some time to discuss your financial values, priorities, and goals. For example, how will you handle household expenses, separately or jointly? If you pay expenses jointly, how will you split them, equally or apportioned in some way? Will you open joint checking and credit card accounts? If you do, how will you protect yourself if your partner fails to meet his or her obligations and you become responsible for the entire joint debt? Will you plan for retirement separately or as a couple? How will you replace the spousal benefits that your partner won't receive from your Social Security earnings and your defined benefit pension plan? For more on this topic, and for suggestions on how to prepare a joint budget and calculate joint net worth, see Money Issues That Concern Unmarried Couples.

Insurance issues that concern unmarried couples
Life Insurance
Life insurance can provide a vehicle to address many concerns of unmarried partners. For example, government and employee benefit programs don't replace income for your partner after your death, as they do for a spouse. Tax laws don't shelter your estate, as they do for a married couple. You may face a greater likelihood that disapproving relatives will contest your will. Life insurance offers a vehicle to replace income after the death of your partner, provide cash to pay estate taxes, and provide funds that avoid probate.

Health Insurance
A growing number of employers now offer domestic partner benefits—including health insurance—to the unmarried partners of employees. A major disadvantage of these plans is that the health coverage your employer provides to your unmarried partner is generally treated as taxable income to you (unless your partner qualifies as your dependent for federal income tax purposes). If your employer offers these benefits, you should complete a cost/benefit analysis, taking the tax effect into account, before your partner enrolls. Or, if your employer offers domestic partner benefits and your partner's employer also offers health insurance, you should compare the annual cost of each plan before selecting coverage. You may find the additional tax on the domestic partner coverage outweighs the benefits of enrolling in a domestic partner benefits plan.

For more information on these subjects, see Insurance Issues That Concern Unmarried Couples.

Property ownership issues that concern unmarried couples
As an unmarried couple, no uniform guidelines aid in dividing your shared property if your relationship ends. If you die, your property does not automatically pass to your partner. There are three main categories of property to consider: (1) property with a documented evidence of ownership, such as real estate, vehicles, bank accounts, and securities (stocks and bonds), (2) property in the form of income, and (3) untitled property. By understanding the different forms of property ownership that are available to you (sole ownership, joint tenancy with rights of survivorship (JTWROS), and tenancy in common), you can protect your rights and ensure that your property is disposed of as you wish. A written agreement, such as a domestic partner agreement, can support your ownership rights and your intentions if you die or your relationship ends. For more on this topic, see Property Issues That Concern Unmarried Couples.

Special considerations for gay and lesbian couples
As a gay or lesbian couple, you face many special financial planning challenges. Most important, perhaps, is the fact that you lack the protections and benefits of legal marriage. A domestic partner agreement supplemented with other legal documents may be your best option for protecting your relationship until same-sex marriage is legalized. If you're estranged from your family or have no one to turn to in a time of need, you may need to plan for larger-than-average financial resources to see yourself through a crisis or an extended period of disability. If you're facing a costly terminal illness, you may be able to convert your life insurance to cash through accelerated death benefits or a viatical settlement. If you or your partner can sign up for health insurance under a domestic partner benefits plan, you should weigh your options carefully. Because domestic partner health benefits are taxable, you need to consider whether the costs, given the additional tax, are worth the benefits. If you're concerned about whether your wishes will be respected after your death, you shouldn't take anything for granted. There are ways to keep your estate out of court and to minimize the risk of a will challenge. If you're a parent, key legal documents can protect your parental rights. And, finally, some tax issues may be of particular concern to you. For discussions of all these topics, see Special Considerations for Gay and Lesbian Couples.

Parental rights issues that concern unmarried couples
As an unmarried parent, you must take extra legal precautions to protect your rights. Parenting rights that are automatically conferred on married partners don't necessarily apply to you. 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. You can protect your parenting rights with key legal documents. For more information, see Parental Rights Issues That Concern Unmarried Couples.

Estate planning issues that concern unmarried couples
As unmarried partners, you have no automatic legal right to inherit each other's estate. Unless you have a will or will substitute to provide for your partner, your estate will go to your legal next of kin. Because you cannot take advantage of the unlimited marital deduction, which is only available to married couples, your estates are subject to taxation on any amounts in excess of the estate tax applicable exclusion amount ($2 million in 2006, 2007, and 2008) that you leave each other. Gifts you make to each other are also taxable if in excess of the $12,000 annual gift tax exclusion and not sheltered by your $1 million gift tax applicable exclusion amount. Although property you share through a JTWROS avoids probate, it does not automatically escape estate taxes. Without a durable power of attorney for health care, you may be excluded from medical decision making or even from visiting your partner if he or she becomes seriously ill or incapacitated. If you don't have a durable power of attorney for finances, you have no authority to manage your partner's affairs, as he or she would wish. For further information on these topics, see Estate Planning Issues That Concern Unmarried Couples.

Caution: The applicable exclusion amount for gift tax purposes remains fixed at $1 million even though the applicable exclusion amount for estate tax purposes increases through 2009. Any portion of your gift tax applicable exclusion amount you use for lifetime gifts effectively reduces your estate tax applicable exclusion amount that will be available at your death.

Tax issues that concern unmarried couples
Because the federal tax laws generally favor married couples, you face many disadvantages in how you're treated for income tax purposes. The so-called marriage penalty is one exception that may work to your benefit. If you both work and earn approximately equal incomes, you may pay less tax as two individuals filing separately than if you were a married couple filing either jointly or separately. Federal gift and estate taxes also affect you differently. Because you're not entitled to the unlimited marital deduction, you may face limits on the size of the nontaxable estate you can leave your surviving partner. Although property you share through a JTWROS avoids probate, it does not automatically escape estate taxes. Any property you transfer to your partner for less than its fair value may be subject to gift tax. For a discussion of these topics, see Tax Issues That Concern Unmarried Couples.

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