Cash and Credit

60  |  A Legal guide for Lesbian and Gay Couples
W
hen you and your partner decide to live together, you are
probably acting on romantic impulses. But as we all know,
practical problems do tend to tag along in the wake of
romance. Most of these problems aren’t legal and don’t involve lawyers—
all the barristers in the world can’t help you when the two of you discuss
your monthly budget or decide whose family you will visit next.
Many day-to-day hassles, however, are connected with law. This
chapter discusses commonly encountered financial issues like credit cards
and insurance, tax filing, insurance of all kinds, name changes, and
immigration questions.
Cash and Credit
Although most of us aspire to rise above nickel-and-dime money issues
when dealing with our partners, that doesn’t mean we can ignore the
financial aspects of our relationships. Every couple—even those who have
registered or married—will benefit from having clear agreements about
who pays the rent, makes the car payments, and buys the groceries. It’s
enormously helpful to have a written agreement regarding your finances.
A contract won’t keep two people in love or prevent them from splitting
up, but it can prevent misunderstandings and arguments. If times
get hard, a written agreement can do wonders to reduce paranoia and
confusion, and help people deal with each other fairly. And if you do split
up, a written document stating who gets what can save you untold hours
of misery and thousands of dollars.
related topic
Chapter 8 has sample living together agreements. The agreements
in Chapter 8 cover situations where you want to share money and assets,
and situations where you want to keep your property separate—and options
somewhere in between.
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Joint Accounts—Dos and Don’ts
When a couple moves in together, questions come up about whether to
pool money and property or keep it all separate. Just because you live
with someone doesn’t mean your financial lives have to be merged. If
you want to combine finances, be sure you really know and trust your
partner. Don’t feel pressured to combine everything when you’re just
starting out simply because the lesbian couple upstairs—who have been
together 22 years—have only one bank account.
Most lesbian and gay couples choose to handle their finances according
to one of the following models.
Traditional marriage model. Property owned by each person before
entering into the relationship remains the owner’s separate property.
Money that either person earns, and property acquired during the
relationship, is considered to belong to both partners equally. You put
most or all of your bank accounts, credit cards, and investments in both
names. If you split up, the property acquired during the relationship is
divided equally. This is the model that is typically imposed on you by the
state if you register or marry.
Socialist model. You open joint accounts and pay joint bills out of these
accounts, to which you contribute according to your financial abilities,
such as three-fourths from one partner and one-fourth from the other.
Business partnership model. You open joint accounts for limited purposes,
such as paying household expenses or to fund a distinct project—for
example, renovating a house, saving for a vacation, or investing. For all
other purposes, you keep your income and expenses separate.
Tip
If you open a joint account for a specific purpose, identify it as such.
Ask the bank if you can name the account—for example, “The Anderson-Henry
Vacation Account.” If you don’t have equal shares, you can supplement your
accounts with a living together contract specifying the percentages each of you
owns. (See Chapter 8 for sample contracts.)
62  |  A Legal guide for Lesbian and Gay Couples
Splitsies model. Each partner agrees to be absolutely self-reliant.
Each separately pays for food, clothes, entertainment, and everything
else, including a share of household expenses. This couple has no
joint accounts. This arrangement can be kept fairly rigid with vigilant
accounting or can be worked out in a fairly easygoing, commonsense,
“I-paid-for-breakfast, you-pay-for-lunch” way.
Joint Bank Accounts
Many lesbian and gay couples peacefully maintain joint bank accounts,
but opening a joint account is taking a risk. Each person is responsible
for all the activity that takes place with the account, and the funds
are generally considered owned equally by the two of you. You’re both
equally liable for bounced checks, overdrafts, and all the rest. It’s even
possible that one partner could withdraw all the money without the
other’s consent, without any obligation to repay half of it.
If, on the other hand, you keep your property and debts separate and
you don’t register or marry, you’ll have no financial obligation if your
partner runs up debts. This means your paycheck cannot be garnished
and your property cannot be taken to satisfy your partner’s overdue bills.
Special Issues
If you are legally married or state-registered as domestic partners or
in a civil union in a marriage-equivalent state, keeping your property separate
may not protect you from financial obligations for your partner. In each of
those relationships, partners have some level of financial responsibility for each
other, even out of separately earned or saved assets. Any agreement you sign
saying otherwise must be prepared according to the strict standards governing
prenuptial and postnuptial agreements.
Another problem with joint accounts is record keeping. It can be hard
to know how much money is in an account if you both write checks, use
a debit card and make withdrawals. This is less of a problem these days,
with instant access to banking information online.
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If you decide that you can work these things out, obtaining a joint
account isn’t a problem. Financial institutions are happy to have your
money under any name or names. You’ll just have to decide whether both
signatures will be necessary to write a check or make a withdrawal, or
only one. It’s easier to require only one signature, but it’s riskier, too.
Tip
Joint accounts may help you avoid probate. When accounts are held
in joint tenancy or there is a payable-on-death beneficiary, and one partner dies,
the account passes to the other partner automatically, without probate.
Caution
Joint accounts may imply a contract to share income. As we discuss
later in the book, in some states, including California, courts will sometimes imply
a contract between unmarried people to share earnings and other property.
Sharing bank or credit accounts might be a factor a court would consider in
deciding whether a couple had an implied contract to share income and property.
If you want to make sure this doesn’t happen, it’s best not to open joint accounts,
or if you do, to sign an agreement about the accounts (and your other assets as
well), such as the Agreement to Keep Income and Accumulations Separate in
Chapter 8.
Joint Credit Accounts
Joint credit card accounts are riskier than joint bank accounts—each of
you is individually liable for the entire amount owed on a joint credit
account, and a lover who goes nuts financially can potentially do damage
to your credit rating. (Here’s an area where banks treat you as “family”
whether you want it or not.)
It’s fairly easy to put two names on a credit card. Creditors will
generally open joint credit accounts—and why shouldn’t they? A joint
account means more people are responsible for a debt. For example, if
Roger and James have a joint credit card, and Roger lets his sister Fiona
charge $2,500 on it, Roger and James are both legally obligated to pay
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the bill, even if James didn’t know about it or even told Roger not to do
it. Similarly, if James retaliates by leaving Roger and going on a buying
binge, Roger is legally responsible for all the charges James makes.
If one of you has a poor credit history, you may be denied a joint card,
even if the other’s credit is great. The partner with better credit may have
to reapply alone. The partner who gets the credit card can have a second
card issued on the account in the other partner’s name—but this will
only give the second partner the right to charge things on the credit card,
not the responsibility to pay for it.
If you want to be generous, you are better off being generous with cash,
not credit. Indeed, when living with someone who has debt problems,
you should sign a contract keeping everything separate to avoid possible
confusion.
Caution
If a credit application has a blank for “spouse” instead of “coapplicant/spouse,” cross off the word “spouse” and write in “co-applicant.”
Don’t present yourself as spouses—the term has specific legal meaning (having
to do with liability and responsibility), and lying on the application is fraud. (Of
course, if you are legally married or state registered, you can go ahead and list
yourselves that way on the application.)
Caution
If you break up, immediately close all joint accounts. All too often,
one person feels depressed during the breakup and tries to feel better through
“retail therapy.” Don’t just allot the accounts so that each of you keeps some of
them. You’re both still liable for all accounts—and you could get stuck paying the
“therapy” bill your ex ran up if you don’t close the account.
Credit Discrimination
Discrimination against lesbians and gays in the area of credit is no
longer very common. Ability to pay, not sexual orientation, seems to be
the criterion used. If you believe you were discriminated against when
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requesting credit, check to see whether your state or local municipality
has a law barring sexual orientation discrimination in credit transactions
(not common, but possible in some places). If it does, report the creditor
to the agency that oversees the law.
Beyond this, there is probably little you can do. A federal law called
the Equal Credit Opportunity Act bars creditors from discriminating on
account of race, color, religion, national origin, sex, marital status, age,
or because all or part of a person’s income derives from public assistance.
Courts have declined to extend the law to include sexual orientation.
Checking Your Credit
When a bank, department store, landlord, or collection agency wants
information about a person, they can get it by paying a small fee to a
credit bureau. Credit bureaus are companies that collect information
related to your creditworthiness, including your bank and credit
card accounts, loans (such as mortgages, car loans, or student loans),
payment history on those loans and accounts, delinquencies on accounts,
bankruptcy filings, criminal arrests and convictions, current and previous
employers, lawsuits and judgments against you, and tax or other liens.
You have the right to examine your credit file under the federal
Fair Credit Reporting Act. If the file contains inaccurate or outdated
information, the credit bureau is required to correct it, or at least to
include your version of the dispute in your file.
Unfortunately, many credit reports do contain inaccurate or outdated
information. If you have some joint accounts with your partner or have
been living together for a long time, the credit bureaus may have included
information on your credit record about your partner’s separate accounts.
Information about separate accounts should only appear on the report of
the responsible partner. Information about joint accounts should appear
on both reports.
To make sure your credit reports are accurate, request a copy of your
credit report and review it for errors or outdated information. It’s a good
idea to do this every year. New credit reporting rules entitle you to one
free credit report per year.
You can order a copy of your report by phone, online, or by mail:
66  |  A Legal guide for Lesbian and Gay Couples
• Phone: 877-322-8228
• Online: www.annualcreditreport.com
• By mail: Annual Credit Report Service, P.O. Box 105283, Atlanta,
Georgia 30348-5283.
You must provide your name, address, Social Security number, and
date of birth when you order. You also may be required to provide
information that only you would know, such as the amount of your
monthly mortgage payment.
If you want additional copies of your credit report within a year, or you
need to correct information in your credit report, you’ll probably need to
contact a credit bureau directly.
How to Contact Credit Bureaus
If you find errors on your report (for example, a car loan for which your
partner is the only signatory) or outdated information, notify the credit
bureau in writing. The bureau is required by law to correct your report. If the
bureau investigates the item and disagrees with you, at the very least you can
include a brief explanation on your report about the disputed item.
The three major national credit bureaus are:
• Equifax, P.O. Box 740241, Atlanta, GA 30374; 800-685-1111;
www.equifax.com
• Experian, National Consumer Assistance Center, P.O. Box 2002, Allen,
TX 75013; 888-397-3742; www.experian.com
• Trans Union, Consumer Disclosure Center, P.O. Box 2000, Chester, PA
19022, 800-888-4213; www.transunion.com.
Resource
Take control of your credit report. For more information on what can
appear on your credit report and for how long, how to correct errors, and how
to repair credit after a financial setback, see Credit Repair, by Robin Leonard and
John Lamb (Nolo).
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Buying and Investing Together
Many couples make investments and other purchases, such as a house or
car, together. Shared home ownership is covered in Chapter 8. Here we
discuss other assets and investments.
It’s not difficult to make joint purchases or investments. Salespeople are
used to seeing all combinations of people buying and investing together.
In major urban areas, you will be able to find gay and lesbian investment
brokers, car brokers, loan brokers, and the like. Just ask a friend or take a
look at the classified section of a local LGBT newspaper.
If you make a shared purchase or investment, you should prepare
an agreement reflecting who owns what percentage, especially if your
contributions are unequal. Samples are in Chapter 8. Even if only one of
you takes out a loan to finance the purchase or uses separate money to
invest or buy, you can both be legal owners, if that’s what you want.
Certain property items come with title documents—common
examples are motor vehicles and stocks. The purpose of a title document
is to document ownership and show the type of ownership you have.
Stock certificates and other documents showing how investments are
held are prepared by investment brokers or by the company in which
you invest. Title documents for motor vehicles are prepared by your state
motor vehicle department at your direction.
In most states, there are two possible ways to share ownership and
register property with title certificates. The information given here is
general. Different states have somewhat different terminology. (For motor
vehicle purchases, check with your state’s department of motor vehicles
for details.)
• Tenants in common. With this type of ownership, you and your
partner each own a specific percentage interest in the property, and
can do with it whatever you like. Ownership of tenancy-in-common
property may be divided however the owners choose. You can
own equal shares, one owner can own 90% and the other 10%, or
anything in between.
• Joint tenancy with right of survivorship. With this form of ownership,
you and your partner each own the entire property along with the
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other. When one owner dies, the surviving owner automatically
inherits the deceased owner’s share.
Joint tenancy ownership must be spelled out in the ownership
document. Generally, if no type of ownership is specified on a title
document of jointly owned property, it is owned as a tenancy in common.
Caution
Take special care when you register your car. In some states, either
owner can sell the car without the other’s consent if you own it in joint tenancy.
As with so many other issues, if you are married or in a marriageequivalent registration, marital rules will most likely trump the way you
title your property.
related topic
Chapter 9 discusses types of ownership in the context of owning real
property.
Tax Matters
Filing Joint Returns
Only couples who are legally married or in a marriage-equivalent
relationship on December 31 of the tax year can file joint state income tax
returns. If you are not legally married, you will have to file separately.
If you and your partner are married or registered in a marriageequivalent state, you are in a dilemma. You are legally married, and the
IRS (theoretically) requires married couples to file as married, even if
each partner files a separate return—it is against the law for you to file
as a single person. On the other hand, the federal DOMA says that the
federal government does not recognize same-sex marriages. Complicating
things further, some states require that you file your state taxes using the
same status you used on your federal taxes—so even if you live in a state
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that recognizes your marriage, you may not be able to file as married with
the state and as single on your federal taxes.
So, what should you do? The National Center for Lesbian Rights
website (www.nclrights.org) offers a few possible options for same-sex
couples who are legally married. In most states married and registered
couples file as married, either jointly or separately, on their state tax returns.
If you live in a community property state (California, Washington, or
Nevada), you each report 50% of the community property income,
meaning the combination of your two incomes, on your federal tax
return, even though you continue to file your federal return separately as
single taxpayers. Another option is to file as single (or head of household
if appropriate) but include with the tax return a cover letter explaining the
situation. Another is to file two sets of tax returns—one as married, one as
single—and pay the higher tax, again including a cover letter explaining
that you have made an effort to do what is legally required. Other advisers
say simply file state returns as married and the federal returns as single.
See an expert
Consult an expert. Before making a decision about tax filing status,
talk to a lawyer or an accountant who has expertise in the area of same-sex
relationships. And make sure you keep up to date on current developments (see
“Keeping Up With Legal Changes,” Chapter 1).
Claiming Your Partner as a Dependent and Filing as Head of Household
Even though you cannot file joint returns, your partner may qualify as
a dependent if you provide over one-half of your partner’s total support
(for food, shelter, clothing, medical and dental care, education, and the
like) during the year. Other requirements are that your partner must
have earned less than $3,650 in 2011 (not including tax-exempt income,
such as welfare or Social Security benefits) and must be a U.S. resident or
citizen who has lived with you the entire year. In addition, your partner
cannot file a joint return with someone else (for example, with a spouse
if he or she is still legally married to someone else). For more details