3 Reasons Why Gays should Document Everything
by Alex Jason
I can’t wait to walk down the aisle with my fiance. Since we’ve been together almost four years now, it’s only natural that we’d love to show the world we want to commit to each other for the rest of our lives. Unfortunately, since we’re gay, such an event would only be ceremonial: the federal government doesn’t recognize same-sex relationships and who’s knows when they will.
In the absence of a political miracle that sees gay U.S. Rep. Barney Frank (D-MA) succeed President Obama and legislate same-sex marriage, I figured I’d talk to some people and see what my options are.
What I found out - to be brief - is that the more patience I have, the more options I have. Just like old folks planning for their retirement, I too can make sure my fiance gets money from my 401(k) should I pass away. I can own an apartment 50/50 with a partner and even share the mortgage tax benefit. And if we have kids, we can both have legal rights guaranteeing our children can’t be taken away by the state or another family member - even if we separate.
The key? Document everything.
“If it’s not documented, then you can’t rely on any formal structure to help you or to prove your case,” says Debra Neiman, a certified financial planner in Massachusetts who helped start the PridePlanners Association, a group of financial planners serving the gay and lesbian community. “If it’s not on paper, there are no guarantees for anything.”
That’s not say your relationship should be all about spreadsheets and calculators. Not at all. But if you and your partner are serious about making a life commitment, you need to hammer out the basics surrounding your money, house, health and children (optional). Older gays and lesbians didn’t have the luxury of talking openly about relationship planning, but us young folks do and we need to start planning.
First and foremost: the federal government does not provide any benefits to same-sex couples, nada, zip, zero. Some states provide protections to same-sex couples. Massachusetts, Iowa, Vermont, Maine and Connecticut have same-sex marriage laws that put gays and lesbians on equal footing with their straight counterparts. New Jersey has civil unions that are equal to marriage in everything but name. New Hampshire is close to passing same-sex marriage legislatively. Washington and Oregon have domestic partner laws, while Hawaii has limited domestic partnerships. Everywhere else, nothing.
Still, you don’t want to count on the kindness of a random judge to decide whether your decade of mortgage payments qualifies toward ownership of your apartment, or if that car your ex promised you actually becomes yours. You want to know for sure. Where to start? Write up a domestic partner agreement.
A domestic partner agreement can be as specific or general as you want. Ultimately, it’s a road map for your relationship, and like a map, it shows where you are now and where you hope to be later. If you have a car, say whose it is and outline who pays what for it. If you own an apartment, detail the mortgage payments and who gets the tax benefits that come along with the property. If one pays all the mortgage and the other takes care of the kids - and that couple equates the two - spell that out so a judge knows that the parties in the relationship see one another as equals. Some couples also outline what assets would be divided, and how, should they split up.
Doing all this allows both people in the relationship to assess themselves, what they have and what they want. Getting all this out in the open is essential to making plans. Being as upfront and honest about your financial positions is essential to coming up with an agreement that both people are happy with.
You’ll need a lawyer to draw up a domestic partner agreement that will stand up in court. Financial planners even recommend that each person in the relationship retain his or her own counsel so as to satisfy a judge who could claim that one member in the relationship was coerced into consenting to the agreement.
“You’re either very prepared or very aware or you don’t want to think about it (financial planning),” says John Fairbanks, financial advisor with Smith Barney in Hartford, Ct. He says a lot of young people in committed relationships figure they’ll start planning after they turn 40. Problem is, that may be too late.
Let’s start with what you can do with everyday things, like bank accounts, 401(k)s, credit cards, cars and health care.
So how should you handle your money? Open a joint account, keep separate accounts? Those in a serious relationship probably want some way to pay for bills together and buy groceries, so a shared account comes in handy. This part’s actually not so hard. A lot of financial planners tell you that the best relationships are those where those involved feel equal - so having your own money in addition to sharing funds is a great way to go. Just be careful in the joint account: if one person deposits $15,000 and the other only puts in $100, then you’re liable to pay the federal gift tax –which is a whopping 50% on anything over $13,000 — on the difference. The solution? Keep most of your assets in separate accounts and contribute equally, either on a percentage or per-dollar basis, to the joint account. Remember, document that there’s a 50/50 divide. A simple account statement will suffice.
Dealing with your 401(k) account at work is even easier. You can list anyone as the beneficiary for your savings, just contact your human resources department and fill out the appropriate form. Just be sure to keep an eye on the form should you split up with your partner: you don’t want your ex walking away with a hefty some just because you forgot to keep the form current!
Credit cards aren’t that tricky either. You can always put another person on your account, usually for a fee, regardless of your relationship. But be careful: credit is debt. If you sign on to the account, and your partner bails or can’t pay the bills, you may be liable. One advantage of being an unmarried couple is that your credit ratings remain separate, so if one of you needs to rehabilitate your credit rating, there’s breathing room to do so: while the person with good credit borrows the money the other can pay him/her back without having to involve creditors.
Speaking of creditors, be careful if you and your hubby want to buy a car. Sure it seems like a no-brainer: how else are you going to get from your living room to the grocery store? And for new couples, buying a car can be the first “major” joint purchase. But know your partner before you do this cause if he/she has nothing, and the car is under joint ownership, you’re the one who’s obligated to pay out if you’re sued. Joint ownership sounds great at first, but it is what it is: joint ownership.
Health care for unmarried, same-sex couples can be simple if the right precautions are taken. First and foremost, a couple needs to get a health care proxy, which is a document that outlines the rights of a same-sex partner in the absence of laws recognizing this person as a spouse.
“If you don’t have a health care proxy that lets your partner visit you in the hospital, any hospital can turn you away,” says Todd Sears, a financial planner who runs Merrill Lynch’s LGBT initiative. He suggests filing your health care proxy with the nearest hospital - the one to which you’d be taken in a 911 emergency. Also, carry a shrunken-down version of the document to fit in your wallet and save a copy of the health care proxy in your portable email account to have handy while traveling.
As for health care benefits, you should check with your employer if they offer domestic partner options. If yes, be aware that the monthly payments you pay to add your partner onto your plan will be taxed, unlike married couples. Same-sex couples aren’t alone though: employers providing domestic partner benefits also pay federal tax to provide you with the health care. This all may change soon though. Legislation in Congress is currently in the works to make benefits granted to unmarried couples equal to those who are married.