By: Martin M. Shenkman, Esq.

Introduction/Overview: How do unmarried couples that don’t want to marry or same sex couples protect their interests? What happens to their assets if they break up? What if they have adopted children and their relationship ends? Let’s leave aside issues that are state specific and focus on general planning.

√ Question: Married couples are afforded a host of protections under every state’s laws. There are detailed rules governing distribution of assets on death, and large bodies of law determining how assets are divided in the event of a divorce. But little of this law exists for unmarried or gay couples. How do they protect themselves?

√ Answer: An important step for most non-married couples is to carefully prepare and sign a “living together agreement.” This should be done by opposite sex couples that simply want to live together before marriage, by opposite sex couples that want to live together to see if they want to get married, and by same sex couples that may or may not take advantage in the future of a civil union or gay marriage statute.

√ Question: What exactly is a living together agreement and how should the couple go about it?

√ Answer: It’s a legal contract that sets forth the rights and obligations of each of the parties during the relationship, governs what happens if the relationship ends, and should also specify what happens if the couple opts to marry or join in a civil union or register as a domestic partnership. Each party should have his or her own lawyer and treat the matter seriously and given it much thought. That does not mean it has to be adversarial or even a negative experience. The process can be controlled by the couple to avoid that. Properly done it can actually enhance the relationship by assuring that each partner has a really detailed understanding of the other partner’s views on a host of critical issues. Mishandled it can be a combative force that could undermine the relationship.

√ Question: What items should be considered in a living together agreement?

√ Answer: The list is really endless and depends on the lifestyle, goals and concerns of the couple. The more items that are intelligently and reasonably addressed in the agreement, the fewer items can exist to fight about if the relationship comes to an end. That being said, the scope of the agreement can vary considerably, and may in fact change over the duration of the relationship. Consider the following:

• The agreement for many non-married couples might focus on just their house. Many living together agreements are completed prior to an unmarried couple purchasing a home together. This type of agreement will address who will own the home, perhaps who will pay what expenses, what should happen if the person who is to pay a particular expense does not do so, who gets the house or what should be done with it if the relationship ends, who gets the contents of the house, and more. While addressing primarily a home is a good starting point, and a fairly common approach, it lacks the detail of an integrated and comprehensive agreement. What happens if you agree to share expenses but one partner becomes ill or looses his or her job? As you expand the scope of the “house” questions it can evolve into a comprehensive agreement.
• Determine the nature and scope of personal or relationship provisions, and whether or not they should even be documented. Will one of you provide for the care of the house and manage the household finances while the other works? While some of these issues could be critical to address as they might be the foundation of the financial arrangements exercise caution in crafting provisions that a court can’t or won’t enforce.
• How should property owned prior to the partnership beginning be identified? How should it be treated? If you own a beach house before the partnership began, and it is agreed that if the relationship ends, the beach house remains yours, does that agreement apply to the furniture? What about the art work? What if your partner renovates the beach house or if all of the maintenance expenses and property taxes are paid from a joint account that is funded with earnings from each of you? Should an adjustment be made?
• How should expenses be covered? Will you each retain a separate checking account, deposit your separate earnings into that account and pay your portion of bills? Alternatively, would it be simpler to have a single checking account for all deposits and bill paying? Which ever approach you opt for, how should that account be divided if the relationship ends? Should disparities in expense payment be equalized? Is sharing expenses equally fair or agreeable? If you earn double your partner should you cover 2/3rds of each expense and he or she cover the remaining 1/3^rd? Sharing in proportion to earnings may be viewed as more reasonable or fair that equal sharing of costs.
• What happens if one partner is disabled? Will that change the overall agreement? It will unquestionably change the economic contributions each partner will be able to make to the relationship. How should that be handled?
• What about estate planning and documents? Should you each agree to leave at least certain assets to the other? This is not only a legal and personal decision. It should be a financial decision as well. If your partner dies and leaves you his or her half interest in the home you lived in, will you be able to afford the payments without the contribution of your partner’s salary? If not, consider life insurance or alternative planning arrangements.
• How should disagreements be handled? It might be advantageous to include a dispute resolution mechanism in the living together agreement. Perhaps mediation before an agreed upon group could be mandated. This might prove simpler, less costly and far less adversarial than litigation.

IR-2011-33, March 31, 2011

WASHINGTON — The Treasury Department and the Internal Revenue Service (IRS) today announced that Form 8939 is not due on April 18, 2011, and should not be filed with the final Form 1040 of persons who died in 2010.  New guidance that announces the form due date will be issued at a later date and Form 8939 will be released soon after guidance is issued.

Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent, is an informational return used to establish basis for income tax purposes of property acquired from a person who died in 2010. 

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for persons who died in 2010. The executors of the estates of certain decedents who died in 2010 were previously required to file an information return (Form 8939) relating to large transfers at death, which was due on the date of the decedent’s final Form 1040 or a later date specified in regulations issued by the Treasury Department.

Enacted in December of last year, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reinstated the estate tax for persons who died in 2010.  The law allows executors of the estates of decedents who died in 2010 to elect to have the rules of the estate tax not apply to the property of a decedent’s estate. This election is to be made at the time and in the manner prescribed by the Treasury Department.

Treasury and the IRS plan to issue future guidance that will provide a deadline for filing Form 8939 and for electing to have the estate tax rules not apply to the estates of persons who died in 2010.  The prior deadline was April 18, which remains the deadline for filing a decedent’s final Form 1040 this filing season.  The forthcoming guidance will also explain the manner in which an executor of an estate may elect to have the estate tax not apply.

A reasonable period of time for preparation and filing will be given between issuance of the guidance and the deadline for filing Form 8939 and for electing to have the estate tax rules not apply. The Form 8939 is not currently available, but will be made available soon after the guidance is issued. Both will be made available on IRS.gov.

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