Retirement Issues For Domestic Partners, cont'd

By Dianna Doreen
Writer, mPower

From this day forward

An action that domestic partner employees should take, one not needed by a married employee, is to designate their partners as beneficiaries to their 401(k) plan. Automatically, these assets go to the participant's spouse in the event of the participant's death, but the estate is not structured this way for unmarried partners.

One of the best things an employee can do to save for retirement is to contribute the maximum allowed by law to a company 401(k) plan (as of Y2K: $10,500 per year, subject to the 25% of pay limitation and other possible limits at the plan level). Taking advantage of the company's matching contribution helps further compound retirement assets.

Domestic partnerships share financial interdependence, a mutual commitment, and perhaps children. The tax implications of domestic partnerships include the fact that domestic partners do not meet the IRS' definition of a dependent and are not legal spouses, however, children of domestic partnerships may be considered dependents.

Another tax tip Altfest tells domestic partners is that they can give their partner (or anyone else, for that matter) a gift of up to $10,000 a year with no tax consequences.

To have and to hold

If you are in a domestic partnership, there are steps to take to provide for the long-term financial health of your household regardless of your employer's policy on extending benefits to domestic partners.

If you don't hold a marriage contract with your partner, but do have a long-term commitment that includes saving for retirement, you should take precise steps to "help safeguard assets and provide financially for domestic partnerships," says Altfest.

"The one thing you must realize is what you do and don't have," Altfest said she tells her domestic partner clients. "One thing you don't have is a marriage contract, which is a contract recognized by state and federal authorities. There are ways, however, to make up for not having the contract."

Altfest says those include writing a will that makes your intentions "crystal clear" since they can be contested by family members. Irrevocable trusts "are never contestable, and are the best way to ensure what your family will receive," she said.

Other steps to take are life insurance for the major money earner, and possibly "extramarital agreements" which are "lesser known, but they do give consideration to each party."

All these documents would have to be drawn up by a lawyer. Each would cost about the same, with the fee depending on the complexity of family finances.

You also might want to consider holding essential legal documents in both partners' names, and naming beneficiaries on any pension, mutual fund, stock or IRA assets.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

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