A domestic partnership has its own financial benefits. The differences between a marriage and a domestic partnership are many, and each has its own advantages. Which is right for you depends on your preferences and circumstances.
What’s the Difference Between a Domestic Partnership and Marriage?
Sharing Health and Retirement Benefits
Married partners have access to spousal IRAs, and they can roll over a spouse’s IRA into their own upon their partner’s death. They also have more options than domestic partners for taking spousal Social Security benefits. You’ll also likely qualify for coverage under your spouse’s health insurance plan if you’re married. This is a pretty standard benefit for married couples. Sharing retirement benefits can be a bit more complicated for domestic partners, and you may end up paying higher taxes. You might also experience a lack of coverage through your partner’s employer-sponsored health insurance. Your partner’s health insurance can also be treated as a taxable benefit if you do get coverage.
Tax Benefits
Tax season may sweeten the marriage deal because couples enjoy several tax benefits when they tie the knot. Your standard deduction is double what it was as an individual. You’re also eligible for a larger home sale exclusion as a married couple. Married couples can transfer an unlimited amount of assets to one another free from gift or estate taxes. And your gift tax exemption is doubled to $30,000 instead of $15,000 as of 2021, or $32,000 instead of $16,000 as of 2022, if you plan to give money or property to your family or anyone else in the future. But domestic partners avoid the “marriage tax” penalty. Married couples who earn roughly the same generally get penalized during tax time because they tend to move up to a higher tax bracket more quickly. It’s the opposite of the “marriage bonus,” in which one spouse earns significantly less than the other. This delays the tax bracket jump.
Survivor Benefits
You’re much better off if you’re married and your spouse passes away without a will. All states recognize a married partner’s right to inherit at least a portion of their deceased spouse’s assets. Domestic partners may not be eligible for death, pension, or survivor benefits if one partner passes away, depending on the state.
Asset Protection
You’ll also be better protected financially in the event of a divorce if you’re legally married. You’ll be entitled to the division of marital assets, as well as potential spousal support. Domestic partners who separate may share these same rights in some states, but the exact laws can vary significantly.
State Recognition
Perhaps the biggest drawback of a domestic partnership is that rights vary so greatly by state. Some—such as California, Hawaii, Maine, Nevada, New Jersey, Oregon, Washington state, the District of Columbia, and Wisconsin—recognize domestic partnerships. Others do not. The rules can also vary by city. Lack of domestic partnership rights can often have a big effect on your finances depending on where you live, so this is an important point to consider.
Which Is Right for You?
Choosing between domestic partnership and marriage is a personal decision, and it will largely come down to your own values and the laws in the state where you live. Securing all possible financial benefits of a domestic partnership takes a bit more legwork and planning than marriage, so be sure you’re discussing everything with a lawyer who knows your state and local laws before you choose that route.
The Bottom Line
Being on the same page with your partner about money is an important aspect of managing your finances regardless of whether you’re in a marriage or a domestic partnership. You may have to change your mindset about money when you get married or decide to become partners. Life partnership is certainly about more than money, so these decisions should factor in the many different aspects of merging your lives together. Just be sure that money is a part of your planning as you decide whether to get married or become domestic partners.
