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As former Justice Sandra Day O'Connor noted, “the demographic changes of the past century make it difficult to speak of an average American family.” In fact, among adult Americans, more people now are unmarried than are married, and the number of individuals living together in monogamous, dedicated non-marital relationships continues to grow dramatically with every new census. There are many possible reasons for this, including legal inability to marry, not wanting to lose Social Security benefits, not wanting to take on medical costs for a spouse, religious or other personal ethical reasons, among many others. In light of this reality, laws that concern the establishment, maintenance, and termination of families continue to rapidly adapt to the changing definitions of “family.” And this may be nowhere more true than when defining a “spouse” for tax purposes.

Whether an individual is deemed a “spouse,” and the rights thus afforded, are determined both under state and federal law. For example, one may be deemed a spouse at the state level for purposes of collecting health insurance benefits from a party's employer, without being deemed a spouse at the federal level, and therefore unable to claim spousal tax breaks and receive a deceased partners' Social Security benefits.

In 1996, then President Bill Clinton signed the Defense of Marriage Act (DOMA), 1 USC 7. DOMA defined the term “marriage” for federal purposes as “only a legal union between one man and one woman as husband and wife”, and “spouse” as “a person of the opposite sex who is a husband or a wife.” DOMA specifically states that the definition of “marriage” and “spouse” is applicable to any “Act of Congress,” which necessarily includes the Internal Revenue Code. Prior to DOMA, the IRS generally relied solely on state law in determining if a couple was married for Federal income tax purposes.

Notwithstanding DOMA, there have been significant developments in support of unmarried couples in the states and federal courts. For example, in the landmark decision Lawrence v. Texas, 539 U.S. 558 (2003), the Supreme Court overruled a 1986 Supreme Court decision, Bowers v. Hardwick, 478 U.S. 186 (1986), by striking down a Texas law that made homosexual relations a crime. The effect of the Lawrence decision was to effectively overturn similar laws in several states. This historic decision holds wide-ranging implications for the civil rights of homosexuals.

But the impact of Lawrence will be felt beyond homosexual relationships. Some states, like California, have laws that recognize cohabiting couples as domestic partners, but there are typically few state level protections for the cohabitating couple. Others, including North Carolina, Mississippi, Virginia, Florida, North Dakota and Michigan still criminalize cohabitation by opposite-sex couples though it is hard to imagine that Lawrence will not be extended to provide certain equal protection rights, including a certain right to intimacy outside of marriage, in those states as well.

Since so many rights and benefits are based upon the marital relationship, how does one go about obtaining those benefits outside of a “traditional” state sanctioned marriage between a man and a woman? Currently same-sex marriage is legal in Connecticut, Massachusetts, Iowa and Vermont, with legislation pending in New Hampshire and Maine. The California Supreme Court recently upheld a ban on same-sex marriage, but same-sex couples who married in California before the ban took effect will continue to be recognized as married. More states will surely legalize same-sex marriage. But even with a state sanctioned same-sex marriage, DOMA will restrict federal benefits.

Common law marriage may be available to opposite sex couples. However, difficulty in showing proof of the marriage and the incentives for fraudulent claims of marriage led many states to formalize the requirements. Common law marriage is now recognized in only a handful of states. Generally, under the Full Faith and Credit Clause of the Constitution, a common-law marriage that is validly contracted in a state where such marriages are legal will be valid in states where such marriages cannot be contracted.

Because it may be impossible to qualify as spouses, common law or otherwise, some unmarried parties of the same sex have attempted to qualify for certain benefits by claiming dependent status. For example, employer-provided health coverage is excludible from income tax when coverage is for an employee, an employee's spouse, or an employee's dependents.

In order for a domestic partner to obtain “dependent” status under §152 of the Code, the person must meet the four requirements of a qualifying child or qualifying relative:

• The person must not meet the requirements of a qualifying child or classify as the qualifying child of somebody else;

• The person must either live with the taxpayer for the entire tax year or be a relative of the taxpayer;

• The person's gross income must be less than the allowable federal dependent exemption amount for the particular tax year; AND

• The person receives over one-half of his or her support from the taxpayer for the calendar year in which such taxable year begins.

Therefore a member of an unmarried couple may qualify as a dependent “relative” for federal tax purposes even if he or she is not actually related to the taxpayer.

Adult adoption may be another way to obtain “spouse-like” benefits for a non-spouse. In fact, in some states, this may be the only way that same sex partners can create a legal bond. The parent-child relationship that is created through adult adoption can allow the adoptee to have legally recognizable inheritance rights as an heir. Another common reason for adult adoption is to provide for perpetual care of the adoptee. This allows an adoptee of diminished capacity or abilities some assurance of lifetime care under family insurance and inheritance rights.

Adoption is a statutory creation, and is therefore permissible only under the provisions of the applicable jurisdiction's governing statutes. Many states have attempted to restrict people from adopting their romantic partners. And, the ability to create inheritance rights for an adult through adoption varies among the states with some courts holding that adult adoptees do not have the same inheritance rights as those adopted as minors. This is especially true if the adult was adopted after the testator or trustor (who was not the adopter) dies, or if the court feels that the adopter had the intention of bringing someone into inheritance rights that were not intended by the testator or trustor.

Adult adoption also carries a number of consequences. If an adult adoption is granted in one state and the pair moves to another state, the validity of the adoption may come into question, as a court in the second state may claim that the adoption violates strong public policy. One drawback to adopting one's domestic partner is that, unlike marriage, adoption is generally irrevocable. And, many states hold that the adoption of an adult severs all of his or her natural kin relations, destroying any interest that the adoptee had in his or her natural kin's estate and severing any interest that the natural relatives might have had in the adoptee's estate. Note also that unlike a spouse, the adopted partner (like a natural born child), may be completely disinherited.

Practice Point: Societal norms and practices are changing much faster than the law in the area of estate and tax planning for unmarried adults. Even a discussion as essentially straight forward as defining a spouse requires an awareness of federal, state, and local laws with respect to benefits and legal protections in order to properly represent your unmarried clients.

For more information, in the Tax Management Portfolios, see Horwood, Wolven, and Zaluda, 813 T.M., Estate Planning for the Unmarried Adult.