Q. My boyfriend and I are not married and do not plan to [wed]. We own a house together, and I am pregnant with our first child. Also, we’ve agreed that I will quit my job after maternity leave, and we’ll rely on his salary. Are there any legal steps I need to take?
A. Yes! Many people reject marriage as a “piece of paper.” It’s logical to think that true love and commitment transcend ceremony and ritual, but marriage is a status conferred by the state that confers a bundle of more than 2,000 legal rights, from paying taxes to fishing licenses. Nowhere was this more clear than in the battle to legalize same-sex marriage. By remaining unmarried, heterosexual couples are in the same boat as same-sex couples, whose marriages were previously unrecognized under federal and state law. What does that mean?
Tax issues: There are two types of tax problems: lifetime and death-time. Married couples enjoy an “unlimited marital” exemption during life without incurring gift taxes, and an unlimited deduction at death without incurring estate taxes. Unmarried couples do not enjoy this benefit. An unmarried person may leave any amount to her partner up to the federal exemption during her lifetime or at death — currently $5.25 million.
Many of you might breathe a sigh of relief and say, “Well, we have nowhere near that amount of money!” but consider this: New York State imposes taxes on any amount more than $1 million at a rate of 14 to 16 percent. Although married spouses can apply the unlimited marital deduction to amounts over the exemptions, unmarried persons may not. This can result in a need for substantial sums of cash within nine months of a person’s death, when the tax returns are due.
More importantly, the federal government treats married couples as one pocketbook. Spouses can make unlimited lifetime transfers to each other without any tax consequences. If an unmarried person transfers more than $14,000 to another person in a year (called the “annual exclusion” amount), with limited exceptions for medical or education costs, they have made a taxable gift. Although the tax due on that gift can be applied to the lifetime $5.25-million exemption, most people never mention it to their accountant and fail to file a gift tax return. That can result in substantial interest and penalties if the person is ever audited by the Internal Revenue Service.
You might again breathe a sigh of relief and say to yourself, “Well, I’ve never made any substantial gifts, so I’m in the clear.” Not so fast. If you or your partner (a) purchased an apartment or home and paid for all or most of the down payment; (b) deposited your paycheck into a joint account and the other person is not contributing equally to the account; or (c) retitled any accounts or real property from the name of one person to the other person individually or in joint names, without any receipt of property value in return, then you have in fact made a “gift” under the IRS guidelines.
Children and custody: For unmarried fathers who are on the birth certificate of a child, that is presumptive evidence of paternity. The absence of the father’s name on the birth certificate has disadvantages for both a mother and a father.
For a father, it could mean that he must proactively establish paternity if the couple breaks up, and the mother denies him visitation.
For a mother, it means possibly having to establish paternity in an action to recover child support. Couples deciding not to marry should take care to document the nature of their relationship and child visitation and custody in the event that the relationship terminates. This is known as a “cohabitation agreement” and is similar to a pre- or post-nuptial agreement.
Estate planning: The failure to engage in estate planning can be devastating to the unmarried couple. If an unmarried partner dies without a will, the other partner will not inherit anything. The partner might be able to take title to any jointly held property, such as real estate or accounts; however, it is not immune from challenge. For example, a family member might try to “claw back” the joint asset by claiming it was all contributed by the decedent. You also would not automatically be the beneficiary of any IRA accounts, and would not be able to “roll-over” the decedent’s IRA into your own as you would if you were married.
If the partner leaves a child or children, the children would inherit all of the estate. If the children are minors, there are restrictions on how title to the property will pass, and the surviving partner will likely have to have an account held with the court and petition the court each time he or she wants to get access to the funds.
In short, it is imperative that you consult an attorney to address these and other concerns if you are in an unmarried, committed relationship. A little bit of advance planning can save enormous amounts of stressful situations later.
Alison Arden Besunder is the founding attorney of the Law Offices of Alison Arden Besunder P.C., where she assists parents with their estate planning needs in New York City, Nassau, and Suffolk counties. You can find Besunder on Twitter @estatetrustplan and on her website at www.besunderlaw.com.
