Benefits, unanswered questions and financial questions under Domestic Partnership and Civil Union Acts Issues for same-sex couples in New Jersey.
By Mark D. Bloomfield (New Jersey)
Domestic Partnership (“DP”) and Civil Union (“CU”) Acts have opened the door to various benefits for same-sex couples in New Jersey. Along with the benefits come issues and unanswered financial questions that family law practitioners and financial advisers must consider should the relationship end.
A number of states and municipalities have enacted legislation providing for some level of domestic partnership or civil union recognition, while others have taken a polar opposite position. Over 30 states have enacted legislation specifically banning marriage between same-sex couples, while only Massachusetts, Connecticut, New Hampshire, Vermont, Iowa, and New York have specifically and categorically mandated the existence of such marriages. Somewhat paradoxically, the District of Columbia also recognizes same-sex marriage, while the federal government does not. In January 2010, the New Jersey Senate rejected a same-sex marriage bill. The national debate over “same sex” marriage continues (in July 2010, a federal judge held several provisions of the Defense of Marriage Act unconstitutional, an appeal was filed in October of that year), with implications that will certainly have an effect on the positions being taken on state and local levels of government.
Enactment of the Domestic Partnership Act
On January 12, 2004, the New Jersey Assembly approved the Domestic Partnership Act (the “DP Act”), which became effective on July 10 of that year. Proponents of the DP Act pointed out that the effective date appropriately coincides (albeit roughly) with the celebration of the nation’s cherished independence and the resulting freedoms we all enjoy. Those opposed to the Act continue to raise their voices in opposition for any number of reasons, including fears about the potential future impact on traditionally recognized marriages.
Highlights
New Jersey’s DP Act does not recognize same-sex marriages, but rather seeks to establish a “clear and rational” basis for providing certain benefits and rights to same-sex couples, as well as unmarried opposite-sex couples whose partners are both 62 years or older. It does not apply to any other opposite-sex couples since it is assumed that those couples could enter into a valid marriage if they chose to do so.
The DP Act provides the methodology for applying for domestic partnership status, as well as how those partnerships might be terminated. Most forms of discrimination against domestic partners in housing, lending, employment and health care matters are now prohibited under the Act.
- Valid domestic partnerships established outside of New Jersey will be recognized as valid in New Jersey.
- Transfers of property to a domestic partner upon the death of the other partner are now exempt from the State’s transfer tax statute.
- Domestic partners may now be considered dependents under the Act, allowing the “supporting” partner a state income tax deduction of $1,000, as long as the dependent does not file his/her own tax return.
- Domestic partners of state employees can be considered as dependents under the state health insurance program. Further, domestic partners of certain public employees may also be entitled to receive pension benefits under certain circumstances.
- Domestic partners may make decisions regarding medical care and organ donation on behalf of their partners.
- The DP Act allows domestic partners to contract between themselves to modify their rights and/or obligations as set forth in the Act.
The Civil Union Act
To further muddy the waters, as a result of Lewis v. Harris, 188 N.J. 415; 908 A.2d 196 (N.J. 2006), decided by the Supreme Court of New Jersey on December 21, 2006, the Civil Union Act (the “CU Act”) was signed into law and became effective February 19, 2007. The CU Act:
- Provides same-sex couples with the same rights afforded to married couples; where statutes are not specific, equates all spousal rights with rights of civil union partners. No longer addresses opposite-sex couples over 62 years old.
- Available to New Jersey residents only, but recognizes similar arrangements from other jurisdictions.
- Does not automatically dissolve pre-existing DP arrangement.
- For 2007, civil union partners may check the “Married/Civil Union Couple Joint/ Separate” box. Civil union status follows the federal rule regarding eligibility, i.e. must be “married/unionized” at end of tax year.
- If the decedent’s death occurs on or after February 19,2 007, property passing to surviving civil union partner is entirely exempt from the tax. CU partners will be considered Class A beneficiaries (formerly Class D).
- Children born into civil union are presumed to be children of both.
- Filing of Inheritance Tax return will not be necessary, although estate tax may apply.
- Exemption from fees for transfers of real property between spouses (including transfers pursuant to divorce) is expanded to include same transfers for parties in a civil union.
Considerations for Family Law Practitioners
There are a couple of provisions in the DP Act that will almost certainly require future consideration by the court system. For example, the DP Act states in Section 10 (3) that “the court shall in no event be required to effect an equitable distribution of property … which was legally and beneficially acquired by both domestic partners during the domestic relationship.” It is likely that, as more and more couples register under the Act and begin to acquire assets, disputes will arise regarding disposition of those assets should the relationship end.
As a result, many of the equitable distribution issues that arise in traditional matrimonial litigation could apply in domestic partnership dissolution. Immunity issues and commingling of assets, for example, will almost certainly be areas of dispute, as could asset identification and valuation.
In addition, the DP Act states that both parties agree to be jointly responsible for each other’s basic living expenses during the domestic partnership. If the parties’ living arrangement has evolved into a traditional “breadwinner/homemaker” scenario, what obligation, if any, might the earning partner have to support his or her partner beyond the term of the relationship? The DP Act does not specifically address this question. The DP Act also excludes language regarding support obligations for children born into or adopted into the domestic partnership, although that and other issues related to family or family-type relationships are generally handled by the Chancery Court, Family Part.
As noted above, the DP Act allows for the parties to contact between themselves to address these and other issues specific to their relationship. This may, in fact, provide future business opportunities for family law practitioners. However, in the absence of such a contract or agreement, the Family Court may be faced with the responsibility of deciding asset distribution and support issues that will most certainly arise over time.
The CU Act goes further, in stating that the “dissolution of civil unions shall follow the same procedures and be subject to the same substantive rights and obligations that are involved in the dissolution of marriage.” In other words, alimony, equitable distribution, child custody and support, and pre and post-nuptial agreements will all be potential issues under the CU Act.
The family law practitioner, and the financial experts, must also be alert to the similarities and differences between the Acts, and also must take special care regarding tax implications when drafting settlement agreements. Remember, the Federal government and its agencies, including the Internal Revenue Service, do not recognize domestic partnership or civil unions! In addition, state tax regulations vary greatly from state to state.
Remember also that family law statutes are “state specific.” Rules and precedents regarding domestic partnerships, civil unions and even common-law arrangements are not consistent from state to state.
Domestic Partnership and Civil Union Acts Issues: Conclusion
The Act essentially state that the parties of the domestic partnership or civil union must follow the same procedures, and be afforded the same rights and obligations, as any other action for divorce under existing New Jersey law. It is pretty clear then, that the language of the Acts has opened the door for the courts to become involved in the same financial considerations family law practitioners must deal with in traditional matrimonial litigation.
Because the Acts have essentially created a new “family” incarnation, it is reasonable to expect that many of the issues the courts deal with upon termination of the traditional family unit will also apply to domestic partnership and civil union relationships.
While the national debate continues, the reality is that the Acts are now the law of the land – in the Garden State at least – and will raise issues that family law practitioners, including financial advisers, will be asked to grapple with in the future.
Mark Bloomfield, CPA, ABV, CFF, of Wiss & Company, LLP in Livingston NJ, brings more than 20 years of experience providing accounting, auditing, tax and consulting services to businesses and individuals representing a broad spectrum of industries. His extensive background includes serving as an expert witness and providing testimonies for matrimonial litigation cases involving business valuation issues, marital lifestyles, cash flow analysis and forensic investigations.
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