Domestic partnership vs. Marriage: Which is best for you?
Only about 70% of Millennials are getting married nowadays, this is significantly lower than any other previous generation. Some of the main reasons for millennials’ decisions not to get married include; not burden their partner with student loan debt or medical debt or not wanting to pay the marriage tax. Instead of traditional marriage, many are choosing alternatives such as domestic partnerships, civil unions, and even cohabitation agreements.
The term Domestic Partnership was coined in 1979 by gay rights activist Tom Brougham, as a way to provide protection to same-sex couples. A domestic partnership is a legal relationship between two people who live together and share a common domestic life but are not married. Benefits to having a legal domestic partnership allow unmarried couples the right of survivorship and hospital visitation. In 1999, California became the first state to adopt domestic partnerships for same-sex couples and extended it for heterosexual couples in 2019.
Over the years, domestic partnerships have played a critical role in helping protect same-sex couples before the U.S. Supreme Court’s 2015 decision to extend the right for same-sex couples to marry. Since then, several states like California, have expanded the legal rights available to spouses in same-sex relationships through civil unions and domestic partnerships.
Domestic Partnership vs. Marriage.
Differences between a civil union and a domestic partnership vary state by state. Domestic partners often have more limited rights than in a civil union. In New Jersey, for example, a civil union creates more shared responsibility for debt and more shared rights to property. However, the benefits for those in a domestic partnership cab differ significantly depending on the state or county, ranging anywhere from very limited rights to all the rights afforded to married people
|Sharing retirement benefits can be complicated||Spousal retirement benefits easier to access|
|May not have access to partner’s health insurance||Access to spouse health insurance|
|No special asset transfers||Unlimited asset transfers in most states|
|Avoid the marriage tax penalty||Larger standard tax deduction and gift tax exemption|
|May not have survivor benefits||Clear spousal death benefits|
|No financial protection in separation||Financial protection in divorce|
|Not recognized in all states||Recognized in all states|
Currently, there are five states that allow for civil unions (Colorado, Hawaii, Illinois, Vermont, and New Jersey). While seven states (California, District of Columbia, Maine, Nevada, Oregon, Washington, and Wisconsin) recognize domestic partnerships, Hawaii allows for a similar relationship known as reciprocal beneficiaries.
There are vast differences, however, in these state laws. Some recognize domestic partnerships for same-sex couples only. Others also permit heterosexual couples as well, while others grant the options only to opposite-sex couples who are 62 or over (Social Security has its own marriage penalties for some people who are divorced or married couples getting SSI). Other states, like California, require domestic partners to file jointly for state tax purposes even if they file separately on their federal 1040s. There are many variations between states on what qualifies as a domestic partnership and those states’ laws can change frequently.
While some couples are deciding to form domestic partnerships as a way to avoid costly marriage taxes, it may not be the best decision in the long run. Before deciding what’s best for you, understand your state’s laws regarding domestic partnerships and civil unions. If you have a question about the domestic partnership laws in your state, feel free to reach out to Herman & Company – Accounting & Consulting for more information.
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Types of Domestic Partnerships:
- Informal Arrangement or “Cohabitants” – living together and being in a committed relationship without registering formally with the state and no eligibility for state offered benefits
- Employee Recognized Partnership – Many employees – government and private – respond to the ban of same-sex marriage by treating cohabitating same-sex partners of employees just like an employee’s spouse. Such that domestic partnership is eligible for coverage on an employee’s health insurance policy. This may or may not require formal registration with the state. Now that same-sex marriages are legal, employers may not longer provide same-sex domestic partnership benefits unless married.
- Local Registration – Since the 1980s, some cities and counties allow residents to register locally as domestic partners, but these registrations do not impose or offer any martial rights or duties. The main benefit of local registration is the transfer of property – saving anywhere from a few hundred to a few thousand in taxes. Since same-sex marriage is now legalized many states are stopping this option.
- State Registration – Many states that previously offered marriage equivalent registration have phased out these alternative systems, and very few couples bother to register anymore now that marriage is available nationwide. The states that still offer this option have a framework of rights and responsibilities that are pretty much identical to those that come with marriage in terms of state laws and rights & responsibilities. However, federal agencies generally don’t recognize the couple in these partnerships as spouses, so they do not qualify for any federal marital benefits.
If you have a question about relationship-contracts, civil unions, or domestic partnership laws in your state, feel free to reach out to Herman & Company – Accounting & Consulting for more information.
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