High Prices for Unwed Partners

In a dispassionate capitalistic monotone, the Financial Times reports on the state of the states on legal and economic effects of preventing same-sex marriage. In that spirit, I'll try to hold down the shrillness and sarcasm. Let me just write that this is the running score in the Hurt the Gay Couples Game.

The Lauren Foster recap concludes that most financial benefits married couples rightly assume are between impossible and difficult for unwed same-sex ones. In the 43 states that have no recognition of any type for SS couples, married couples' financial protections require considerable effort and purchased expertise.

The FT includes the relationship-recognition map from the Human Rights Campaign. What financial protections there are at the state level (none by the feds) some in California (spousal rights to all unmarried couples), D.C. and Maine (domestic partnerships), Hawaii (reciprocal partnerships), Connecticut, New Jersey and Vermont (civil unions), and Massachusetts (SSM).

Our Census Bureau reports that unmarried couples are at 6 million, up from 3.2 million in 1990. For them, as the FT puts it, "In most states, unmarried couples have the same legal status as acquaintances. And that has far-reaching consequences for financial and personal matters."

For example, spouses can give each other unlimited amounts in life or at death, tax free. An estate tax is a one-time event -- death of the survivor -- for marrieds and twice for unmarried partners.

Partners who are not allowed to marry have to arrange such alternatives as testamentary charitable remainder uni-trusts (UCRUTs). Assets can support a surviving partner, but only if in the end the funds go to the pre-named charity.

If an unmarried partner wants to leave over $2 million to the partner, anything over $2 of the estate is taxable. It is not for married people.

For an unmarried couple, adding the other person to a house title triggers a gift tax -- not so if they were married (and could marry).

Alternately, a SS couple might have to set up a limited partnership, which would own their assets and disperse any only in proportion to the partners' contributions. Of course, this is not necessary for spouses.

A tiny bright spot in this mess was last summer when President Bush signed the non-spousal beneficiary law. It lets anyone named inherit some retirement plan (like 401[k]) assets and roll them into an inherited IRA, thus deferring taxes.

Wills become crucial for unmarried partners too, according to Lehman Brothers managing director and wealth advisory group head Holly Isdale. "For a traditional married couple, certain things are ass-umed . . . but for unmarried couples, they have to proactively state how their assets will be divided at death or separation,” she said.

This can mean separate life insurance policies naming each other as beneficiary. It can also take the form of an irrevocable life insurance trust to minimize taxes. Even here, for unmarried couples only, these fold into the estate and are taxed that way, albeit at a lower rate than gifts.

Also, considering the attitude of many potential estate beneficiaries in the family tree, preventing challenges to wills take a particular importance for unmarried couples. Trusts do not go through probate and are harder to challenge than a will.

As for separation, there are both assets and often kids to consider. Holland+Knight partner Tamara Kolz urges a cohabitation agreement. Her legalese on this is a veritable prose fest:

When a relationship dissolves, it is not unusual for an alimony requirement or a transfer of property from one partner to another to occur. Because the relationship is not recognised by federal law, alimony is not deductible as it would normally be, and any transfer of property doesn’t fall under the exception of transfers incident to a divorce, so there may be capital gains or gift tax consequences. So even dissolving the relationship is far more complicated and costly than for heterosexual married couples.

In short, there really is no in short for unmarried SS couples. In the seven states and the federal district that offer some protection, the burden is a little lighter and the undergrowth a bit less dense. However, the federal tax laws are for spouses, not the unwed. State laws in the 43 playing Hurt the Gay Couples mean that preparation is intense, demanding and unforgiving.

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Tags: massmarrier, benefits, amendment, same sex marriage, civil unions, domestic partnerships, Financial Times, Lauren Foster