Ending a relationship is often a difficult and challenging experience. That's no different whether you're legally married, part of a domestic partnership, or a long-term unmarried couple. If you were not legally wed, there are several factors you need to consider for your financial, legal, and emotional well-being.
One of the most important considerations for any couple breaking up is children, says Charity Babington Falls, a Senior Wealth Planner at Wells Fargo Private Bank and an attorney. This is an especially touchy issue when it comes to same-sex couples.
"A child of a same-sex couple almost never carries genetic material of both parents, and in many states, nonbiological parents have little to no parental rights after separation, unless they have previously undergone a co-parent adoption," Falls says. "Separation from the biological parent could mean that a co-parent's rights to visitation are cut off, a sometimes devastating result to both the adult and the child."
Even if you don't have kids, living together and combining financial assets or owning a home together can create challenges. Property rights after a separation is more complicated than just whose name is on the deed or the bank account.
"Other factors may play into the analysis, such as who paid the down payment and mortgage payments, routine maintenance, and other repairs, and whether the partners had a cohabitation or other property agreement," Falls says.
"Legal and financial advisors can help you reduce at least some of the pain that comes with a break-up." — Charity Babington Falls, Senior Wealth Planner, Wells Fargo Private Bank
Partnership or marriage?
For same-sex couples who formed domestic partnerships or civil unions before same-sex marriage was legalized across the country, their status depends on which state they live in, Falls says.
Some states still allow domestic partnerships and civil unions, while others do not. In some states such as Connecticut and Delaware, existing civil unions have been automatically converted to marriages, with all the associated legal rights and obligations of marriage. In others, such as Washington, new same-sex domestic partnerships are allowed only when at least one of the partners is at least 62 years old; those that did not meet this qualification as of June 30, 2014, automatically were converted to marriages. Also remember, Falls notes, that some states still recognize common law marriage; you might be considered married even if you never had a wedding.
The status of your previous relationship is important because it can affect what property and parental rights you and your partner have after dissolving the relationship. In addition, if your relationship is not considered a marriage, you or your partner could end up with an extra tax bill as you divide your assets.
The IRS, as well as state and local tax authorities, "generally permits married couples to freely transfer property between themselves before and 'incident to' divorce without incurring income or transfer taxes," Falls says. "These exceptions do not apply to unmarried couples."
Helping prevent disputes
Ideally, Falls says, when couples move in together without the legal umbrella a marriage provides, they should consider a cohabitation agreement to spell out property ownership, payment responsibilities, and how any assets will be divided if the couple later decides to separate. If they care for children together, the couple may also want to consider whether the non-biological parent should co-adopt to preserve full parental rights.
If you didn't make any prior agreements, though, a good move, if possible, is to keep your split-up civil and amiable — and get some professional advice.
A lawyer can advise you on your legal rights and obligations in your state, says Falls. Your relationship manager can help you find the resources to help you sort through the impact that splitting up is likely to have on your savings, tax obligations, and, potentially, your retirement savings.
"The laws are complex and the financial and personal repercussions that come along with splitting up can be significant," Falls says. "Legal and financial advisors can help you reduce at least some of the pain that comes with a break-up."