How Should You Combine Finances After a Civil Union or in a Long-Term Same-Sex Relationship?
Over the past several years, progress towards equality for LGBT (lesbian, gay, bisexual and transgender) couples has moved with astonishing – and refreshing – speed.
Marriage equality is now the law of the land in fifteen states plus the District of Columbia, with two more (New Mexico and Hawaii) seemingly on the way to bringing that total up to seventeen.
It seems like a very long time ago when, in 2000, the state of Vermont became the first to recognize same-sex partnerships through the creation of the “civil union.” While Vermont has since moved on to fully recognize gay marriage, civil unions remain the vehicle of choice in a handful of other states, including Nevada and Colorado.
From a financial perspective, civil unions and marriages are not the same thing.
The most important distinction between civil unions and marriages, from a financial standpoint, is that civil unions are not recognized by the IRS for joint-tax-filing purposes.
That’s not a deliberate snub by the nation’s tax collector, but rather the simple absence of federal legal definitions in the charters mandating civil unions.
So unfortunately, full financial equality is still some ways away. In the meantime, though, here are some constructive steps you can take together.
Before You Combine Finances, Figure Out Your Goals and Risk Tolerance
Should you combine your investments into joint accounts? Well, that depends.
The two most important determinants of an individual investment strategy are:
- Setting long-term goals (such as retirement, educational expenses, charitable giving, etc.) and
- Deciding the level of risk you are willing to take to attain those goals.
Discuss these two issues with your partner, and see how compatible your goals and investment styles are. Do you want to retire at age 55, while your partner is happy retiring at 70? Do you panic every time the market drops, while your partner maintains their cool? All couples should discuss these issues to make sure that they stay on the same page with regard to their long-term financial goals and their investing style.
If it turns out that you don’t share the same investing style, you may want to maintain separate accounts built around your different attitudes to risk.
Maximize Your 401(k) and IRA Contributions
If both you and your partner are employed, there’s nothing stopping each of you from making the maximum contributions to your retirement accounts.
In 2014, an individual can contribute up to $17,500 in a 401k, and for an IRA the contribution limit is $5,500. So between the two of you, there’s a potential $46,000 per year you could be socking away for retirement.
Getting an early start to your retirement investing, and staying disciplined with your contributions year after year, is a real, impactful way to reach the retirement you dream about.
Analyze Your Accounts As a Whole After Your Civil Union
One good way to make the most of your finances is to reduce the administrative overhead. It’s fine to keep both your individual as well as joint accounts, but it will probably be more efficient if you choose one investment platform for them all. Fidelity, Schwab and TD Ameritrade are arguably the three most well-known platforms, and they all offer the full breadth of services.
Furthermore, you should manage across all of these accounts as though they’re a single pool of assets. In other words, don’t treat each account as a separate entity: look at your entire portfolio holistically, regardless of who holds the account.
Services like Jemstep’s Portfolio Manager allow you to analyze across all of your accounts, regardless of whether they’re held in one person’s name or in your joint names. Portfolio Manager will analyze your current diversification and then make specific buy-and-sell recommendations to improve your portfolio.
Enjoy the Present While Saving for the Future
Social attitudes about love and relationships are much healthier than they were just one decade ago. Still, there’s a long way to go.
Enjoy the moments of each day, while also making smart financial choices that will help you enjoy many more years to come.
Are you thinking about combining finances after a same-sex civil union? Tell us what you think.
For investment advice and practical tools about how to combine finances towards your long-term investment goals, visit Jemstep.com and sign up for Portfolio Manager.