Domestic partners are couples who live together without being legally married, whether they are opposite sex or same sex couples. Because they are not subject to matrimonial laws, these couples need to create their own agreements if they wish to provide for their partner, in life and in death.
Can I claim my partner as a dependant?
Yes, but only if you meet the IRS' five-point test.
Only couples legally married on December 31 of the tax year can file joint income tax returns. But if one partner supports the other, the supporter can file a tax return as a single person and claim their partner as a dependent. Here is the test:
Are They Unmarried? If the supported person is married, filing a joint tax return with his spouse (unusual in your situation), the supporting partner in this relationship cannot claim him as a dependent. The one exception to this: if the married couple did not earn enough to have to file a tax return, and filed only to get a refund, the supporting partner can still claim the dependent.
Are They A Citizen or Resident Alien? The supported person must be a U.S. citizen, resident alien or a citizen of Canada or Mexico.
Is Their Income Low Enough? The supported person's taxable income cannot exceed $2,900. (Certain nontaxable money, such as gifts, welfare benefits and nontaxable Social Security benefits, don't count toward gross income.)
Do You Provide Their Support? The supporting partner must provide at least 50% of the other partner's total support for the year in order to claim them as a dependent. Support includes food, shelter, clothing, medical and dental care, education, entertainment and just about anything similar.
Is Your Relationship Legal? Under IRS regulations, a person who lives with you for the entire year can be considered a dependent so long as the relationship does not violate local law. The IRS has not been explicit on whether this is a reference to laws prohibiting certain sexual acts. Conclusion: If you meet the other four tests, go ahead and claim your partner as a dependent. The worst that can happen is that the IRS won't allow your deduction and your tax bill will be recomputed without the deduction. As Wayne Gretzky said, you miss 100% of the shots you never take.
When do my partner and I need to have a domestic partnership agreement?
A domestic partnership agreement isn't necessary if you haven't been together long or don't own much. But if you have been together a long time or consider your relationship to be long-term, it's important to clarify who owns what; especially if you've started to accumulate a lot of property. This will prevent an emotionally and financially draining court battle if you do split up. Taking time to prepare a well thought-out agreement when things are going well also helps solidify your relationship.
What should our domestic partnership agreement include?
Although same-sex domestic partners are denied the right to legally marry in Arizona, you can turn this to your advantage by making it an opportunity to create documents tailor-made to your situation. The same is true for opposite sex domestic partners who, for whatever reason, choose not to marry.
The most important part of such a package is the domestic partnership agreement. You create the structure you want, and are not restricted by the enormous body of law that encompasses marriage. There are certain general areas of concern for most couples, including: how property and assets are owned, and whether or not income and expenses are shared.
Some couples prefer to keep the property each owned before the relationship completely separate - like their car, house, furniture and the like. Other couples choose to specify that some or all of their property is shared, and transfer part ownership to each other. You can also specify how you will own property acquired during your relationship, or choose instead to provide only for certain major items of property with separate "joint purchase agreements."
Likewise, you can use your domestic partnership agreement to split income and expenses in any number of ways. You can keep separate bank and checking accounts, credit cards and insurance, or you can agree to handle some or all of these things jointly.
In your domestic partnership agreement, you may also want to decide in advance who gets what should you separate, or agree to a process (such as arbitration) for resolving any property disputes that arise in that event. You may never need to rely upon this part of your agreement, but if you do it will certainly save you money and grief.
My partner and I are buying a house together. Should we cover this in our domestic partnership agreement?
Definitely. With the large financial and emotional commitments involved in owning a home it's particularly important to have a clear understanding going into the purchase. There are four major areas, at a minimum, that need to be covered:
· How much of the house do each of us own? You can decide on any kind of split you want, but be sure to put it in writing. If it's not 50-50, can the person who owns less than half increase his share - for example, by fixing up the house or making a larger share of the mortgage payment? Spell it out.
· How will our ownership rights be listed on the deed? One choice is as "joint tenants with rights of survivorship," meaning that when one of you dies, the other automatically inherits the whole house. The problem with this option is that joint tenancy is not severable unless both parties agree to transfer their interest to another at the same time. This can create problems if you split up and one of you wants to sell but the other refuses.
Another option is "tenants in common," meaning that when one of you dies, that share of the house goes to the beneficiary named in a will or trust, or to blood relatives if the deceased partner left no estate plan. Of course you can each specify the other as beneficiary.
· What happens to the house if we break up? Will one of you have the first right to stay in the house (perhaps to care for a young child) and buy the other out, or will the house be sold and proceeds divided? There are many options.
· If one of us has a buyout right, how do we decide on its value, and how long will the buyout take? The best way to determine value is to select a fully licensed appraiser.An appraisal is not expensive and is always worthwhile. Markets change with economics and so do values. You can agree beforehand to use one fully licensed appraiser or allow the option for each to choose your own.
I make a lot more money than my partner. Should our domestic partnership agreement cover who is entitled to my income and the items we purchase with it?
Absolutely. Although each person starts out owning all of his or her job-related income, many states allow this to be changed by an oral contract or even by a contract implied from the circumstances of how you live. Not spelling this critical issue out often leads to misunderstandings during a breakup. For example, without a written agreement that states whether income will be shared or kept separate, one partner might falsely claim the other promised to split his income 50-50. Although they probably wouldn"t win in court, the very fact that a lawsuit can be brought creates a huge problem. For obvious reasons, the need to cover this issue is especially important if a person with a big income is living with and supporting someone with little or no income.
Here's an example: Jan and Shelly plan to buy a fixer-upper house for their first home. Jan is a carpenter; Shelly is a teacher who makes nearly twice as much as Jan. Jan and Shelly plan to own the home equally, so they put the following in their agreement: Shelly will pay two-thirds of the mortgage, and Jan will pay one-third. Shelly and Jan will equally pay for materials to fix up the house, and Jan will provide all the labor. Shelly and Jan also agree to equally own all the property, furniture and fixtures they buy once they move in together.
Am I liable for the debts of my partner?
No, unless you have specifically assumed responsibility to pay a particular debt - such as by cosigning a loan or if the debt is charged to a joint account. In contrast, all debts incurred during a marriage are considered marital debt, for which both spouses are generally liable, even debts incurred by the other person. The only exception to this for unmarried couples occurs when you have registered as domestic partners in a location where the domestic partner law states that you agree to pay for each other's basic living expenses - meaning food, shelter and clothing. This, of course, would not be the current state of the law in Arizona.
If one of us dies without specifically providing for the other, how much property will the survivor inherit?
Nothing under most state laws, unless the deceased partner made a will, living trust, or joint tenancy agreement. In a limited number of states - California, Hawaii and Vermont - registered domestic partners may automatically inherit a portion of a deceased partner's property, but domestic partnership laws carry many restrictions and you should not rely upon them to plan for inheritance. The wiser course of action is to protect your partner by specifically leaving property using a will, living trust or other legal document. Certainly when your partner is grieving, you would not want them to suffer the added trauma of having relatives step in to deny them the right to a say in your burial arrangements, or refuse to leave them property you intended for them.
Estate Planning Attorney