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Legal Lines: Legal mistakes of same-sex couples when combining households

Question: If my same-sex partner and I plan to combine our households, what are things I should be aware of?

Answer: When any couple enters into a long-term relationship, each party brings his or her own financial assets. For couples who can legally marry, there is a statutory definition of which property is “separate” from the marriage and which property is “marital property.” The same is true for couples who never legally marry but instead have a common law marriage. However, for same-sex couples, there is a distinctive lack of statutory or other guidelines that detail how the financial estate of each party will be treated in the event of the dissolution of the relationship.

As a result, when same-sex couples are combining households and financial estates, it is important for each party to detail how the couple’s individual and joint financial history will be treated in the event of dissolution.

The most common mistake couples make is failing to document the assets and debts they are bringing into the relationship and failing to make agreements as to how those assets and debts will be allocated at dissolution. For instance, assume one partner enters the relationship with $10,000 in credit card debt and the other partner enters the relationship with $10,000 invested in a mutual fund portfolio. During the next 10 years, the parties jointly pay down the credit card and jointly contribute to the investment portfolio. At the dissolution of the relationship, which party is responsible for the remaining debt on the credit card and which party is entitled to receive the investment account? Should each party be allocated a percentage of these items? These are the types of questions that, if left unaddressed, can lead to expensive and time consuming litigation.

To avoid these issues, couples should invest the time in creating a domestic partnership agreement or other form of contract outlining the assets and liabilities each party is bringing into the relationship, how those assets and liabilities will be treated during the relationship and how those assets and liabilities will be allocated at dissolution. In addition, these agreements should include a discussion of how jointly acquired assets and debts will be allocated at dissolution.

The second common legal mistake same-sex couples make when combining households occurs in the purchase of real estate. In many instances, only one party will be placed on the mortgage and title of the property despite the fact that it is the intention of the parties to own the property jointly and to jointly contribute to the equity in the property. If the relationship ends, the lack of joint ownership of the property creates expensive litigation possibilities, because the parties must show each party’s ownership interest in the property as well as each party’s percentage share of equity in the property. Similarly, many couples are unaware of the fact that should title to the property be transferred out of the name of one partner into the name of the other partner, such a transfer many trigger the “due on sale” clause in the mortgage, causing the entire mortgage to become due at the time of transfer.

As a result, to the extent that the parties intend to be joint owners of the property and to jointly contribute to the equity of the property over time, the parties should consider jointly titling the property and jointly obligating each party on the mortgage. When both parties are equally invested and equally obligated, allocating any real estate when a relationship ends is much easier. In the event that a joint obligation is not possible, it is imperative that the parties create a contractual agreement outlining each party’s ownership interest, rights and responsibilities regarding the real property at the time of purchase.

The Colorado Bar Association welcomes your questions on subjects of general interest. This column is meant to be used as general information. Consult your own attorney for specifics. Send questions to the CBA attn: Sara Crocker, 1900 Grant St., Suite 900, Denver, CO 80203 or email scrocker@cobar.org.

This story was posted on April 25, 2013.