Financial planning for same-sex couples can be complicated. In addition to purchasing insurance so you share the risk in the event of a lawsuit, there are other methods, such as the way you own something, that can increase or decrease the level of your asset protection.
It Is Important to Protect Your Assets
Asset protection is sometimes misunderstood and often overlooked. By considering trusts as a form of asset protection, the way you title your accounts and other assets, and purchasing an umbrella personal liability policy, the degree to which your assets are protected is increased.
Here are some basic principles of asset protection that every same-sex couple should know (Specific laws vary state-by-state, so check the laws in the state you reside in):
1. Titling of Investment Accounts
Proper account titling can go a long way in protecting your assets from creditors. Most people have their accounts titled individually. However, depending on where you live, there may be better options. For example, Florida has a form of titling for married couples called tenants by entirety (TBE). Assets titled that way are afforded a very high degree of protection from individual creditors of either spouse because both spouses are deemed by the law to own 100% of any assets titled that way.
For example, say Sarah and Brandy just got married and were smart enough to title their joint investment accounts as TBE. A month later, Sarah causes a car accident. If a resulting plaintiff comes after her investment accounts, her TBE accounts would be protected because Brandy is also deemed to own 100% of the accounts. This can be very important when one person in the couple is regularly at higher risk of being sued. However, not all states offering TBE asset protection have revised their laws to include same sex couples. It is expected the issue will be resolved with either litigation or legislation, but in the meantime, check with an advisor in your state.
2. Titling of Other Assets
Some assets, like cars, are better to own individually. Referring back to the example above, if the car used by Sarah in the accident was jointly owned or titled in Brandy’s name, a resulting plaintiff could sue Sarah as the driver and Brandy as the owner or co-owner. That opens up their individual and joint assets to resulting creditors. But, if the car was titled solely in Sarah’s name, then the plaintiff could only come after her individually owned assets and the assets held as tenants by entirety would be protected.
3. Umbrella Personal Liability Policy
Pretty much every person could benefit from owning some amount of personal liability insurance. It is very inexpensive and kicks in to protect you from personal creditors. For example, if Sarah were to get sued for an amount over the limits of the liability coverage included in her car insurance, her umbrella policy would then step in to cover the additional amount (up to the umbrella’s coverage limit) instead of her depleting her assets. (For related reading, see: How Umbrella Insurance Works.)
4. Customizing Trusts to Fit Your Needs
Certain types of trusts (typically irrevocable, not revocable) can be used for asset protection. This is a very complex area of law, but in many cases a trust can be customized both to control the use of assets and to protect assets from potential creditors.
Protect What You Have Earned
Asset protection is vital to protect what you have worked so hard for in life. Planning for same sex couples makes things a little more complicated. In addition to having insurance to share the risk of a lawsuit, there are other methods (such as the way you own something) that can increase or decrease your asset protection status.
(For more from this author, see: Find an Advisor Who Will Work in Your Best Interest.)