A Financial Primer for the Contemporary American Household

In the melting pot that is today’s America, would you believe that “traditional” husband-and-wife family households are now in the minority, comprising 48 percent of the roughly 116.7 million households in the United States, compared to about 52 percent in 2000? Or that, according to a recent U.S. Census Bureau report, households with same-sex couples living together grew an astounding 80.4 percent from 2000 to 2010?

These demographic shifts suggest that not only is it time to revisit how we define a “traditional” American family, it’s also time to recognize that the growing number of “non-traditional” households in the U.S. have their own distinct needs, priorities and strategies for managing their finances.

“In all cases,” said FPA member Stuart Armstrong, CFP^®, “same-sex couples and unmarried couples should consult with legal experts or financial advisers who are well versed in finances for evolving family structures to help guide them through the pitfalls and uncertainties they might face along their financial journeys.”

Here are some suggestions and considerations to keep in mind to make that journey as smooth as possible:

• Designate a durable power of attorney. For unmarried or same-sex couples, having a durable power of attorney ensures that if you become ill or injured and unable to make decisions about your medical care, your partner can make those decisions and access your medical records. 
• Be aware of gifting limits on same-sex couples. Because they are not currently recognized federally as a couple (even in states that recognize same-sex marriage), same-sex couples are limited to the annual gift amount ($13,000 in 2012), instead of having the unlimited gift allowance afforded heterosexual married couples. This distinction often requires extra financial planning measures, particularly in situations such as when partners purchase a home together.  
• Same-sex and unmarried couples don’t get the unlimited marital deduction afforded married heterosexual couples. So when a partner in a same-sex or unmarried couple dies, his or her estate could be exposed to estate taxes from which “traditional” couples may be exempt. Life insurance can be an effective tool for covering that tax burden and transferring wealth to a surviving partner. 
• Have a domestic partner agreement. For unmarried couples, this written contract, like a will, specifies a couple’s rights and intentions for the distribution of property if the relationship ends or if one person dies. 
• If a relationship goes sour… Unlike with heterosexual married couples who have the ability to separate investments, retirement accounts and real estate assets when they divorce, potentially realizing significant tax benefits in the process, same-sex and unmarried couples that split are generally not entitled to those tax benefits, explains Armstrong, potentially exposing them to additional tax consequences. 
• Plan for the unthinkable. Same-sex couples in many states aren’t considered de facto couples in the eyes of the law, which may complicate matters related to hospital visitation, medical decisions, financial decisions in the event of incapacity, long-term care decisions, burial choices, and what happens when a person dies without a legally recognized will. Thus, said Armstrong, it’s imperative for same-sex couples to have a will and various other documents that they carry with them, particularly when they travel, to better ensure their wishes are followed. 
• Be clear about property ownership. It’s often wise for a non-married couple that jointly owns property to establish ownership as joint tenants with right to survivorship (JT/WROS). This way, the surviving partner gets title to a home or other property without the property passing through probate. 
• Be diligent in designating a retirement plan beneficiary. An unmarried partner (unlike a married spouse) is not entitled to receive any portion of his or her deceased partner's retirement account (401(k), personal IRA, etc.) unless the surviving partner is specifically designated as a beneficiary.