Tax Tips for Marriages vs. Domestic Partnerships

Many same sex couples prefer domestic partnerships to marriage for a variety of reasons.

In some states, a domestic partnership entitles the involved couple to many of the same benefits a married couple enjoys. However, it’s important to note the areas of the federal law where domestic partnership is not held in the same regard as marriage.

Domestic partnerships and civil unions, which are legal relationships recognized on the state level, are not marriages recognized by the federal government and therefore don’t allow for filing federal taxes as a married couple. Since the federal government doesn’t recognize domestic partnerships, domestic partners must each file their federal tax returns as a single person, regardless of the marital status indicated on state returns.

Although there are benefits to both domestic partnerships and marriages, there are many differences when it comes to the law and its protections. A legal marriage generally provides more benefits and protections than a domestic partnership. While a marriage is recognized in all states and in most other countries, domestic partnerships are not recognized by most states in the United States. Domestic partners are not considered “family” by law, although there are some workplaces and companies who will qualify domestic partners for the same benefits as those who are married. Even if a domestic partnership isn’t recognized in a particular state, an employer may allow the partner to receive employer benefits. However, since same sex marriage has become legal, fewer and fewer employers are making exceptions for domestic partnerships.

Another issue domestic partners should keep in mind is their estate planning. Married couples automatically inherit each other’s assets upon death, and these assets are inherited without any taxes incurred. This is not the case for domestic partners. While partners can certainly pass their assets along to each other after death, it must be done so through a written will and testament, and those assets will still be subject to taxes and probate. There are other estate planning options that may be more beneficial to domestic partnerships such as trusts, and those should be carefully considered with a financial advisor or estate planning attorney.

While the decision to be domestic partners or spouses is completely personal with no right or wrong answer, it is important to be aware of the differences in the federal law, especially when it comes to your finances, so that you can plan accordingly. If you need help filing taxes with your domestic partner or want to know more about the financial ramifications of your partnership, please give me a call – I’m happy to help.