COUPLES and MONEY

“How Do Gay Couples Handle Money?” It’s a question that comes up fairly frequently when same-sex partners meet with financial advisors. Unlike legally married couples, same-sex partners don’t inherit a default set of assumptions about their financial affairs when they enter into a committed relationship. 
Understandably, the issue is often difficult for gay couples to figure out.

Joint finances. A few years ago, American Express conducted research on this very issue, and learned that in fact about 80 percent of same-sex couples do pattern their financial relationship on the traditional marriage model. Predictably, this means that in such relationships assets are owned jointly, income is pooled, and expenses are treated as joint obligations. The advantage to this structure is that it has a very comfortable feel to it – for most people, it’s the model they were familiar with growing up, so it seems the natural way for a household to manage its finances. The drawback of this approach is that, just as the relationship does not enjoy any of the legal benefits that come from marriage, it does not enjoy any of the protections incident to a legal divorce. Without a domestic partnership agreement in place to spell out how joint finances should be unwound, challenging issues must be addressed under extremely draining circumstances. Similarly, without a solid estate plan and supporting legal documents such as wills in place, the marriage model can pose drastic and sometimes unexpected hardships for the survivor if one partner dies.

A combined approach. More and more, gay couples want to understand the approaches available to them in handling their money, and make intelligent and informed choices about what’s best for them. So what are the alternatives to the traditional marriage model? Some couples take a proportional approach to handling joint finances. Under this model, joint assets and joint expenses are managed in proportion to each partner’s relative contribution. Thus, for example, if one partner has an income of $50,000 and the other earns $25,000, they would divide things two-thirds/one-third. Or, perhaps partners have contributed unequally to the down payment or monthly payments on a house; they might agree that ownership interests in the property should reflect these proportional contributions. Again, arrangements like these always should be spelled out in a properly drafted domestic partnership agreement, and acknowledged in the terms of a will or trust.

Going solo. Finally, some couples prefer to maintain an independent approach to their money. Finances are closely linked with a sense of personal autonomy for many people, and sometimes the non-financial implications of co-mingled funds create more difficulties for a couple than the traditional approach. Under this model, of course, each couple pays for his or her own expenses, and all assets are owned separately. Joint expenses can be shared either evenly or proportionally to income; often, people who adopt this approach maintain separate bank accounts, and either contribute to a joint account for joint expenses, or simply send two checks into, for example, the mortgage company each month. The advantage to this approach is clear: each party retains complete control over his or her own financial affairs, and there are fewer opportunities for messy entanglements in the event the relationship ends. Nevertheless, even couples that opt for the independent approach to joint finances should have domestic partnership agreements and wills or trusts to confirm their intentions with respect to any assets they own jointly.

Write your own rules. It’s important to remember in all of this that the approach you and your partner choose doesn’t necessarily lock you in forever. Things can change over time, and the two of you are perfectly free to re-write the rules whenever you both agree it’s necessary. Here again the domestic partnership agreement has its advantages; it can give you a framework for making these changes. Sometimes, it’s possible to build the change mechanism right into the document itself. For example, a couple may contribute unevenly to the purchase of their residence. The couple agrees that, initially the ownership should reflect each party’s proportional contribution, but that, over time, things should balance out to 50/50. This can be accomplished up-front simply by drafting a sliding scale into the partnership agreement. Note that there can be adverse tax and other consequences if these types of provisions aren’t drafted carefully, so don’t hesitate to consult with an attorney or financial advisor. In fact, regardless of the complexity of your situation, oftentimes a financial advisor is an invaluable resource. Deciding how to handle finances is a difficult issue for many couples. Sometimes, emotions get in the way of clear, objective thinking. I

If you and your partner are grappling with these issues, consider seeking some objective advice.