Reuters Money

Larry and Stan have been together since 1987. On October 6th, 2008, their 21st anniversary, they become one of the 18,000 couples married in California before Proposition 8 was instated. By all accounts, these two successful, Manhattan professionals share their lives together as any other couple — except when it comes to financial planning.

“We are a married couple but not in the eyes for the Federal government,” says Larry. To that end, they have consulted financial planners, attorneys, accountants and other same-sex couples to patch together something most married couples take for granted. “We think we are properly covered for various eventualities to the extent we can be under the existing law,” says Larry.

Financial planning is hard enough for most people, but for non-traditional couples, which includes same-sex partners, civil unions and domestic partnerships, it is fraught with a myriad of complications that other married couples don’t face.

“These couples lack many of the legal protections and advantages that married couples automatically receive in such areas as divorce, taxes, inheritance, and government and employer-provided retirement benefits — in fact, there are more than 1,000 fewer statutory benefits,” says Jennifer Immel, vice president of PNC Wealth Management.

It might be marginally better in those states that issue marriage licenses to same-sex couples: Massachusetts, Connecticut, Iowa, Vermont, New Hampshire, and Washington, D.C., while Rhode Island, New York and Maryland recognize these marriages from other states. But legal protection varies widely just as state law varies widely. “How assets pass without a will is state law, so in that case if your state recognizes same sex marriage, state law likely gives you rights under law without a will,” says Mackey McNeil, a CPA and personal finance specialist. Of course, the federal government directs Social Security and estate taxes so there would be no leeway in these matters.

But baring the benefit of living in a state that has legalized same-sex marriage, allows civil unions or provides spousal rights to unmarried couples (domestic partnerships), most of these couples need to be incredibly vigilant to insure that their financial rights are protected. “You have to know the exceptions to the rules because the rules don’t apply,” says Debra Neiman, co-author of Money Without Matrimony. With traditional couples, there is an implied flow of assets where the spouse gets a certain amount, she says.

Not so for non-traditional couples. To that end, they must put everything in writing. Everything. From healthcare surrogacy and medical care for a partner’s child to long-term care visitation rights and funeral arrangements. This concept is beyond critical for these couples. “Unless the non-traditional family builds the relationship through paperwork, statements, joint ownerships, then the non-traditional spouse will receive nothing,” says Richard Milstein, an attorney with Akerman Senterfitt. These couples should consider creating their own legal safeguards through appropriate legal documents such as revocable trusts, powers of attorney, healthcare directives and domestic partnership agreements.

Take, for example, dying without a will. In most cases, the surviving spouse will receive the benefit. “In a non-traditional couple, there will no benefit unless it is in writing in a will, trust or a beneficial interest as in a brokerage account,” says Millstein. Whatever is written, it must be explicit and communicated to family. “Make sure your family is on board with what your plans are to minimize conflict,” says Neiman.

Also remember that even if an employer offers domestic partner benefits, such as health insurance, these benefits are generally taxable to the employee, so a cost/benefit analysis should be done before these benefits are elected, says Immel.

Finally, transfers between partners pose their own special challenges. “Unlike transfers between a husband and wife, which qualify for unlimited marital deduction, a transfer among partners will be subject to the gift and estate tax rules,” says Immel. Say a home is purchased jointly. Unless there was an equal contribution to the purchase price from both partners, a gift tax may be levied.

Of course, there is still no recourse with regard to Social Security benefits. “There is no Social Security benefit to the surviving non-traditional spouse,” says Millstein. “It is unfortunate and unfair that an individual can work and put money into Social Security and that money will never be benefitting their survivor at all,” he says. There are some things that even astute financial planning can’t avoid.