Money Smart — Protecting your Wallet and your Heart

How and when to keep assets separate—even when you’re madly in love
by Grace S. Yung

For happily partnered couples, it may seem difficult for one to imagine life without the other. Yet, the reality is that many relationships do end—and if that happens, it is in both partners’ best interest to have their financial bases covered so as not to turn emotional issues into major financial hardships as well.

There are numerous instances where the actions of one partner can have a negative financial effect on the other partner. Because many state and federal laws don’t recognize domestic partnerships as being the equivalent of legally married spouses, it is important to undertake alternate planning techniques in order to ensure equitable treatment of everyone involved.

Properly Titling Assets

Even as a registered domestic partner, an individual is able to own separate property. Although assets that are brought into a relationship may be re-titled so as to reflect joint ownership, this may or may not always be wise.

For example, assets that are titled as having “joint tenancy with right of survivorship” could be beneficial to domestic partners. If one partner were to pass away, those assets would simply pass to the surviving joint tenant without being affected by the deceased partner’s will or having to go through probate.

However, while such titling could prevent a partner from being uninten-tionally disinherited at the other’s death, this form of ownership could actually be a downfall if the partners were to split up and dissolve their domestic partnership. In this case, the joint tenancy would need to be dissolved and the asset would either have to be re-titled, or one partner would need to deed his or her interest in the asset to another individual.

The asset’s new form of ownership should also be recorded. Otherwise, there will be no proof of the change in ownership status and the asset will still appear to be owned by both partners equally as joint tenants with right of survivorship.

In many instances—especially that of a newer relationship where partners are not quite ready to comingle assets and accounts—it may be best to consider starting out slowly, such as opening one bank account to which both contribute a certain amount on a regular basis, and from which smaller assets that are jointly titled can be purchased. This way, just in case the relationship does not last, it is much easier to undo these smaller items than to unwind everything.

Likewise, even in long-term committed relationships, it is best to keep certain items such as automobile ownership separate for liability reasons. If one partner is involved in an accident and is sued, both partners will not be liable if ownership is kept separate.

How a Domestic Partnership Agreement Can Help

Although it may seem counterproductive to plan for the demise of a happy relationship, no one can predict what will happen in the future. For this reason, it is essential that both partners protect their financial well-being with a domestic partnership agreement, or DPA.

One way to view domestic partnership agreements is that in drafting such a document, it shows that both partners care enough about each other to face the situations and decisions that can arise in every relationship—and thus are attempting to plan for such possibilities.

Some of the issues that should be included in a DPA are:

• A listing of property and wealth that was brought into the relationship by each of the partners

• A listing of the debts that each of the partners brought into the relationship, as well as how and by whom such obligations will be paid

• Information regarding property that has been purchased by one or both partners during the relationship, as well as how it will be titled

• Information on joint debts that have been incurred during the relationship, and the expected contribution of one or both partners toward the payoff

• A promise by one or both of the partners to provide for the other financially in the event of either of their deaths • An ultimate method of dispute resolution.

If children are involved, the areas of custody, support, and welfare of the children should also be included in the DPA. This should encompass other issues as well, such as visitation rights and future education funding.

When drafting a domestic partnership agreement, it is a good idea to work with a legal professional who is well-versed in these types of issues. Because a DPA is a legal contract, it must be drafted in the state in which the partners reside. In addition, having an attorney work in conjunction with the partners’ financial planner can help to further ensure that all financial bases are covered.

While not all partners are ready to draft a domestic partnership agreement, there should be some type of compromise in cases, for example, where a home is titled in one partner’s name yet both partners contribute to the mortgage and upkeep. In these situations, partners should come up with a financial arrangement that does not leave one feeling like they will be left with nothing should the relationship end down the road.

In any case, there is no set “rule” for what defines a truly committed relationship other than the love and dedication that partners feel for each other over time. Nevertheless, it is always a good idea to ensure that assets are protected regardless of the direction that the relationship goes.

Grace S. Yung, CFP, is a certified financial planner practitioner with over 18 years of experience in helping domestic partners to plan their finances. She is a principal at Midtown Financial LLC in Houston.

See other MoneySmart columns:

Domestic Partner Tax Deductions in Home Ownership (September 2012 OutSmart)
With today’s historically low interest rates, it’s certainly a great time to either purchase or refinance a home.

Protecting the Things that Matter (July 2012  OutSmart)
How those in the LGBT community can use life insurance planning strategies

When ‘I Do’ Becomes ‘I Don’t Anymore’ (June 2012 OutSmart)
Ensuring both partners’ fair share with a Domestic Partnership Agreement

Retirement (May 2012 OutSmart)
Using annuities can provide lasting income for both domestic partners: When depending on a partner’s retirement income, annuities can offer the perfect solution

Financial and Tax Planning Issues for Domestic Partners (April 2012 OutSmart)
Is Uncle Sam getting a bigger chunk of your income and wealth?

The Real Cost of Long-term Care (February 2012 OutSmart)
How LGBT caregivers are paying the price

Gay Money Matters (part 1)(February 2010 OutSmart)
Domestic Partners: Estate and Tax Planning

Gay Money Matters (part 2)(February 2010 OutSmart)
Protecting your assets . . . even when the rules don’t