When it comes to financial planning, unmarried couples do not have the law on their side. Unless, of course, they make their union legal. Whether you’re gay or straight, you’ll face a host of money challenges if your partnership is not recognized by the state.
The federal government does not recognize civil unions, but New Jersey grants gay couples with civil unions the same rights as married couples, says Mary Scrupski, an estate planning attorney with Greenberg, Dauber, Epstein & Tucker in Newark.
Also, any couple, same-sex or otherwise, may enter into a domestic partnership if both partners are older than 62. The age restriction was put in place after civil unions were enacted. Though a domestic partnership can fulfill certain requirements, the protections are limited and not as broad as a civil union.
Civil unions add protections
Same-sex couples in New Jersey gain the same rights as traditional married couples when they enter into a civil union. That goes for inheritances, property transfers, health care decision-making and more.
But a civil union may not be enough “as the political winds may shift against you in the future, or you may move to a less sympathetic jurisdiction,” says Diahann Lassus, a certified financial planner and certified public accountant with Lassus Wherley in New Providence.
Everyone — married or unmarried, gay or straight — needs basic estate planning documents. Even if you establish a civil union or domestic partnership, documents such as a will are essential, especially if you move out of state. Without a will, the state will decide what happens to your property.
Make sure you both have health care directives giving each other the authority to make medical decisions on the other’s behalf.
Consider a trust
“If all of the couple’s assets are in a trust and they are both co-trustees, then if one dies, the other trustee merely assumes control of the trust without having to probate a will,” Scrupski says. “This is useful in the event anyone challenges the disposition because the surviving partner already has control of the assets and, in most will contests, the person with control of the assets has the advantage.”
What a civil union doesn’t help
Because the federal government does not recognize civil unions, there’s not much you can do to protect yourself in several key areas.
One is Social Security. Only married spouses have the right to survivor benefits. If you’re living with your partner and you count on their Social Security income, you’re going to have to prepare to live without it once that partner is gone, civil union or not.
Pensions are another matter. Some employers (including the state of New Jersey) recognize civil unions and will continue to make pension payments to surviving partners (assuming you choose a survivor payout option), while others don’t. Check with your benefits administrator to find out if your pension will extend to your partner through his or her lifetime.
Treatment of individual retirement accounts (IRAs) — governed by federal law — is significantly different for non-spouses. Anyone can be named the beneficiary of these accounts, but if no beneficiary is named, the account may not go to your partner.
The distribution rules are different, too. “If you inherit an IRA from your partner, you will be required to take distributions over your lifetime,” Lassus says. “This is another area where married couples have an advantage of being able to roll over the IRA to his or her own name.”
Then there are tax returns. On the federal level, there are no joint tax returns for unmarried couples. Those in civil unions can file joint returns in New Jersey, but if the couple is registered as a domestic partnership, only one partner can claim the other as a dependent if the other partner is not required to file, Lassus says.
For more information on financial and estate planning for same-sex couples, visit PridePlanners (prideplanners.com).