The New Domestic Partnership Law

By Virginia Palmer

Ms. Palmer is a partner and chair of Fitzgerald Abbott & Beardsley's Estates and Trusts and Elder Law Practice Groups. She focuses her practice on estate planning, probate and trust administration, conservatorships, elder law and related litigation. Ms. Palmer has particular expertise in estate planning for married, unmarried, and domestic partners; pre- and post-marital agreements; representation of individual and professional fiduciaries in the administration of living trusts, conservatorships of the person and estate and decedents' estates. She also advises clients on advanced health care directives and end of life decisions. She will be a panelist in CEB's fall program on the new Domestic Partnership Law.

In the Fall of 2004, CEB will offer two classes on AB 205 - The Domestic Partner Rights and Responsibilities Act of 2003.

Beginning January 1, 2005, the new law will take effect. Domestic partners are defined as either gay and lesbian couples over the age 18 or heterosexual couples over the age of 62, who meet the eligibility requirements of Title II of The Social Security Act for old age benefits or Title XVI of The Social Security Act for aged individuals. To qualify, the couples must share the same residence and must not be in another domestic partnership or married to someone else and must meet the same relationship and competency standards as a couple who is planning to marry.

This new domestic partner law, which many believe to be the broadest in the country, will substantially increase the rights, duties, and responsibilities of all registered domestic partners. The primary question that arises when contemplating the new law is whether it creates a plethora of new legal issues involving real estate, tax, and estate planning. Will currently registered domestic partners be frightened into terminating their registration or will their desire to protect their rights and those of their children and gain access to key family benefits override their concerns?

AB 205 provides that "registered domestic partners shall have the same rights, protections, and benefits and shall be subject to the same responsibilities, obligations, and duties under law, whether they derive from statutes, administrative regulations, court rules, government policies, common law, or any other provisions or sources of law, as are granted to and imposed upon spouses." Fam C §297.5(a).

The approximately 20,000 couples, who have registered as domestic partners in California since 1999, need to become aware of AB 205's potential to create significant tax and property complications. While registered domestic partners will be entitled to many of the rights, benefits, and obligations conferred on married spouses by state law, AB 205 does not apply to laws passed by initiative. Nor does it alter federal law. This incompatibility may result in serious tax consequences for the unwary.

The History of Domestic Partnerships

Domestic partner legislation has achieved several milestones since the city of West Hollywood, California enacted the first domestic partner law in 1985. A number of other cities and counties have followed suit by passing their own ordinances and many employers have added domestic partnership benefits for employees. But it was not until 1999, when the first statewide domestic partnership law was passed, that people began to feel there may be some benefit in registering for full domestic partner status.

The first domestic partnership law granted the right of a domestic partner to hospital visitation and provided health care benefits for domestic partners of state employees. In 2001, additional new rights and benefits for domestic partners were added, including the right to sue for wrongful death and intentional infliction of emotional distress when a domestic partner is killed. In 2002, registered domestic partners were granted the right to inherit a portion of a domestic partner's separate property if the partner died without a will and the statutory will forms were revised to include domestic partners. Additional rights under the probate code were also enacted. By 2003, four California counties were permitted to offer death benefits to surviving domestic partners.

The Effects of AB 205

The new law for the first time creates community property between registered domestic partners, adds additional provisions for intestate succession, includes the statutory right to spousal support and creates the presumption that children born during the domestic partners' relationship are the legal children of both parties. Like married couples, a couple wishing to dissolve the relationship, unless they qualify for a summary dissolution, must file for a dissolution in the family law court in the county in which they reside. A summary dissolution is available if the registered domestic partners have no children, have lived together for less than five years, and own no real property. See Fam C §299.

AB 205 requires the Secretary of State to send out three letters to registered domestic partners before January 31, 2005, the first of which was mailed in June, 2004. The letters advise the couple that the new law substantially changes their rights, duties, and responsibilities and that it will be effective January 1, 2005. The couple, therefore, has until December 31, 2004, to decide whether or not to terminate the domestic partnership registration by simply signing and filing an affidavit of termination with the Secretary of State or to stay registered and submit themselves to the new law.

Because this law creates new and in some cases, more complex property rights, banks, title companies, and financial institutions have already begun analyzing its impact on their customers. Many have started creating new forms and procedures to accommodate California registered domestic partners. For instance, if a spouse's signature was previously required in a transaction, then it is expected that a California registered domestic partner's signature will now also be required. If an owner of real property decides to refinance, the new lender should require the registered domestic partner's financial information or signature if it would require it of a spouse of the borrower.

Challenges Resulting From AB 205

The law, as currently written gives no idea whether it will be applied beginning the effective date of the new statute or the date the couple registered as domestic partners.

Many would argue that under existing family law cases, the retroactivity of the statute would be unconstitutional. However, there is a counter argument that retroactive application of the statute is appropriate because the letters from the Secretary of State serve as notice to the domestic partner. The letters, however, are not specific about the changes in the law and simply suggest that the registered domestic partner "consult an attorney."

A second significant problem concerns taxes, including income, gift, estate, and property taxes. Because this law only affects state law and because most of our tax laws devolve from or interact with federal tax laws, domestic partners may be caught in a tax and estate planning predicament. They cannot file joint federal income tax returns, but their income, for instance, will be community property. Should the partner report one-half of his income and one-half of his partner's income or all of his own? If the partners' incomes are community property and the accumulation of wealth creates community property, will these acquisitions or transfers of wealth be deemed gifts either at the time acquired or at the time of dissolution or death?

There is no way to predict how those issues will be resolved, but many practitioners are recommending the creation of pre and post-registration agreements to address the uncertainty created by the new law. While registration as a domestic partner may have been more casual in the past, eligible couples will benefit by considering registration only after being fully informed of their new rights and obligations and the possibility of numerous legal entanglements. Absent an agreement, the tax issues will continue to be problematic until the federal government recognizes some form of gay civil union or marriage.