For most heterosexual couples, the question of their legal status in California or elsewhere is generally a simple one – they are either married or single.[1] Under the current legal framework in California, the answer is not as clear for same-sex couples, because there are five distinct legal statuses that a same-sex couple may hold. Furthermore, if a heterosexual married couple residing in California purchases real property, it is generally understood among titling professionals that the couple can hold title to the subject property as community property with right of survivorship, community, or separate property, in joint tenancy, or as tenants in common. Unfortunately, it is becoming clear that many professionals who work on titling real property assets for same-sex couples do not understand that the same rules apply to same-sex couples that hold title to property in California, so long as the couple is in a legally recognized relationship, irrespective of its title. This can often lead even the most well-intentioned professionals to incorrectly title real estate and other assets held by same-sex couples.
Status Options for Same-Sex Couples
Under current California law, there are five distinct statuses recognizing legally related same-sex couples, each of which depends in large part on the date and location of the couple’s registration or marriage. These statuses are: Registered Domestic Partners; married; Registered Domestic Partners and married; “married equivalent”; and Registered Domestic Partners and “married equivalent.”
Registered Domestic Partners One of the most common statuses for Californian same-sex couples is that of Registered Domestic Partners (RDPs). This status applies to any couple who registered with the State of California on or after January 1, 2000 and who did not “opt out” of the RDP status before January 1, 2005 when AB 205, the California Domestic Partners Rights and Responsibilities Act of 2003, became effective, or whose members have not formally dissolved their relationship.
Pursuant to California Family Code Section 299.2, this title also applies to those same-sex couples who entered into a legally recognized relationship in a foreign jurisdiction, whether elsewhere in the United States or in another country, that is “substantially equivalent” to a California domestic partnership. Such “substantially equivalent” relationships include the marriages, civil unions or comprehensive domestic partnerships provided by state law in some states, such as Massachusetts or New York. However, the limited rights granted to same-sex couples in other states, such as Colorado, Maine, Maryland, or Wisconsin, are not characterized as “substantially equivalent” and, as a result, a couple who has registered in one of those states but has not subsequently registered with the State of California would not be deemed RDPs under California law.
Married The second status, which applies to those approximately 18,000 same-sex couples that were married in California between June 16 and November 4, 2008, is “married.” As a result of the In re Marriage Cases decision of 2008, where the California Supreme Court recognized the state constitutional right of same-sex couples to marry, this title is also applicable to those same-sex couples who were validly married in a foreign jurisdiction, whether in the United States or in another country, on or before November 4, 2008.
Registered Domestic Partner and Married The third option, which is quite common for those whose marriages are recognized by the State of California as set forth above, is “RDP and married.” Because California law allowed RDPs to marry without first dissolving the registered domestic partnership, many couples who had previously registered with the State as domestic partners subsequently married and, as a result, now hold both statuses.
“Married Equivalent” The next status is more difficult to name. SB 54, which went into effect January 1, 2010, said, in part, that couples who have been legally married in a foreign jurisdiction on or after November 5, 2008 are entitled to all the rights, benefits, and obligations of marriage, except they may not use the term “marriage” to describe their relationship. The latter part of this language is what makes this last option difficult to name. If a couple has been legally married outside of California after November 5, 2008, and has not also registered as domestic partners in California, then they cannot be called RDPs, but they are also precluded from being called “married.” So, you may ask, what are we to call couples that fall in to this category? Although there is no definite answer to this question, “married equivalent” is an accurate description, as is “spouses” or “spouses under the laws of [name of the officiating jurisdiction].”
Registered Domestic Partners and “Married Equivalent” Finally, it is possible for those “married equivalent” couples to register as domestic partners with the State of California. In that case, both titles would be applicable.
This is complex and can be very confusing, both for professionals working with same-sex couples and, not surprisingly, for same-sex couples themselves. It is precisely because of this potential confusion that professionals who work on titling real estate and other assets owned by same-sex couples must be particularly intent on making sure that they talk freely with their clients and ask as many questions as necessary to ensure that they have all of the information they need to properly identify the status of the couple on the titling documents.
Property Characterization
Once the actual legal status of clients is determined, the second, and most significant, issue is to ensure that the subject property is characterized properly in the title documents. Because RDPs, married same-sex couples, and “married equivalent” couples are entitled to all of the same rights and subject to all of the same responsibilities as heterosexual married couples under California law, they are subject to California’s community property regime. This means that there is a presumption that if such a couple acquires property during the tenure of their legally recognized relationship, the property is community property. Therefore, just as heterosexual spouses can hold property as community property with right of survivorship, community, or separate property, in joint tenancy, or as tenants in common, so, too, can same-sex couples.
It is especially important that the intended ownership of real property is properly identified on the original title because, although under California law a transfer of real property between RDPs or same-sex spouses does not constitute a change of ownership that would trigger a reassessment, same-sex couples do not enjoy federal recognition. As a result, same-sex couples do not have the option of making unlimited transfers between themselves without the potential of those transfers being characterized as taxable transfers by the IRS. This means that if title is taken incorrectly in the original title and must later be corrected to reflect the intended ownership of the property, there is a chance that this latter “change in ownership” will have negative tax consequences for the affected couple. In addition, at the death of the first partner or spouse, the survivor is entitled to a full step up in the basis of the property for purposes of California law if the property is owned as community property with the right of survivorship or community property, but not for separate property, joint tenancy property, or property held as tenants in common. Improperly titled property may ultimately create a significant capital gains issue for the survivor.
If property is incorrectly titled, it is also possible that the incorrect titling could lead to a situation where, upon the death of one partner or spouse, the survivor could lose control over the decedent’s one-half of the property. When there are hostile family members involved, this could result in the survivor’s being unable to retain ownership of the property.
Although the laws have changed significantly in recent years, and are likely to continue changing in the future, it is imperative to insure that real property assets are titled correctly. The existing legal framework does require that the professionals involved with the transfer and titling of those assets be educated, understand the issues, talk freely with their clients to ensure that they have all of the necessary information to properly title an asset, and know what resources are available for both the professionals and their clients in the event that questions arise that cannot be answered by the titling professional or the client. It is also important for the owners of real property to assert their rights when taking title. Because of the lack of federal recognition for tax purposes, each situation is different and the particular circumstances should be fully considered prior to vesting. Please call the offices should you have questions, and also see “IRS Recognizes Community Property Law in California for Registered Domestic Partners” for more information on this issue.
Ways Forward
In light of the current legal framework and the significant issues associated with titling, we recommend the following language for use in titling documents:
For RDPs: “Jane Smith and Sally Jones, Registered Domestic Partners, as [community property with right of survivorship/community property/separate property/joint tenants/tenants in common]”
For married same-sex couples: “Jane Smith and Sally Jones, spouses, as [community property with right of survivorship/community property/separate property/joint tenants/tenants in common]”
For RDPs and married same-sex couples: “Jane Smith and Sally Jones, spouses and Registered Domestic Partners, as [community property with right of survivorship/community property/separate property/joint tenants/tenants in common]”
For “married equivalent” same-sex couples: “Jane Smith and Sally Jones, spouses under the laws of [Name of the jurisdiction], as [community property with right of survivorship/community property/separate property/joint tenants/tenants in common]”
For RDPs and “married equivalent” same-sex couples: “Jane Smith and Sally Jones, spouses under the laws of [Name of the jurisdiction] and Registered Domestic Partners, as [community property with right of survivorship/community property/separate property/joint tenants/tenants in common]”
[1] California Family Code Section 297(b)(5)(B) permits opposite sex couples to register as domestic partners if at least one of the parties is at least 62 years old and eligible for Social Security benefits.