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Gift and income tax issues for the unmarried

On Behalf of | Apr 12, 2013 | Same-Sex Partners

The debate in favor of gay marriage places some emphasis on financial rights, such as taxation issues. However, although a joint-tax return with a designation of “married” is important, it stands in stark contrast to what happens when married couples part ways. During a divorce, they can exchange money without any tax implications whatsoever. The same can’t be said for same-sex partners who may not have the same rights as married couples.

The American tax code does not tax either spouse with either an income or a gift tax when a marriage ends. However, when an unmarried couple separates, the whole amount is taxed. Those who support the Defense of Marriage Act argue that those laws apply to any heterosexual or gay unmarried couple that splits.

For people who aren’t married, they might pay income taxes, gift taxes or both. While a person can gift another as much as $14,000 per year, that might not be enough during a separation. Individuals will pay gift taxes on higher amounts and possibly pay even more in income tax. For example, if an unmarried couple separates and owns property and assets together, they will probably exchange the property and assets. Half of the property will go to Partner A while half of the assets will go to Partner B. Even if they each break even, they still need to pay income tax by law. However, if they are married, they wouldn’t need to pay that tax.

During a break-up and separation, financial matters become extremely important, whether the couple is married or not. A family lawyer might be able to help couples negotiate money-saving options to work out financial issues.

Source: Yakima Herald, “Right To Divorce? Just As Important As Right To Marry (No Kidding),” Robert W. Wood, March 27, 2013