mortgages, taxes, merging finances, legalities, adoption

[phantazmagoria]

Hello, Poly World! Thanks for reading my thread, and hopefully responding!

"Poly-fidelitous" triad here, 3 year relationship, living together, super happy, planning a future together. Living in North Carolina.


Here are a few questions that hopefully someone can help us with!

1. Girlfriend pays "rent" currently in house we live in. Do I have to claim that money on my taxes as income? I'm not running a "rental property" so I haven't been.

2. When buying a new house, we want her name to be on the deed/mortgage. Is this an option, legally? Taxes?

3. Legally, can we merge our finances into one account?

4. Are there lawyers out there that can help draw up papers to make everything legally binding? These would be our "marriage/commitment ceremony" documents.

5. Could they help with the equivalent of a pre-nup?

6. Can three people legally adopt children? If she has the babies, can we all be listed as the parents?


Just a few things that we are wondering about when planning our future together. I appreciate everyone's time and efforts to help us out with these questions!!

Thanks!!

 

[SchrodingersCat]

Where do you live? Laws vary tremendously by location. I'll give you the answers for where I live (Saskatchewan, Canada) but you should check your local jurisdiction for confirmation. Most of these answers can be found by Google.

1. Girlfriend pays "rent" currently in house we live in. Do I have to claim that money on my taxes as income? I'm not running a "rental property" so I haven't been.

Technically yes. If she's not on the mortgage, and she's paying more than her fraction of the utilities, then she's legally a renter, signed lease or not.

2. When buying a new house, we want her name to be on the deed/mortgage. Is this an option, legally? Taxes?

No legal barrier, but it will come down to the mortgage broker to decide whether they want to lend money to a group of "friends." The bank and government don't care who pays that taxes, that's up to you guys, as long as they get paid. If you want to split them easily and have something legal to back it up, you'll need a lawyer to draw up a contract.

3. Legally, can we merge our finances into one account?

Yes. My now-husband and I got joint accounts long before we were common-law, so legally we had no more status than roommates.

4. Are there lawyers out there that can help draw up papers to make everything legally binding? These would be our "marriage/commitment ceremony" documents.

5. Could they help with the equivalent of a pre-nup?

You can draw up contracts for pretty much any agreement two people want to make, and as long as it doesn't violate any laws, it should be binding. Since you can't actually be married to more than one person, you'll need to figure out exactly what legal features of a marriage you want to contractually bind yourselves too, and what would qualify as a "divorce" in the event that things go south, causing the contract to come into play.

6. Can three people legally adopt children? If she has the babies, can we all be listed as the parents?

While there's no legal restrictions against two random people adopting babies, adoption agencies have a lot of say in who they give the babies to. I'm not sure whether three people can legally adopt a baby. I guess so, since step-parents can legally adopt their spouse's children without removing the other biological parent's custody. I would consult a lawyer for details.

 

[SchrodingersCat]

I'll give you the answers for where I live (Saskatchewan, Canada) but you should check your local jurisdiction for confirmation. Most of these answers can be found by Google. I'm also reading between the lines and assume the two who aren't the girlfriend are married.

1. Girlfriend pays "rent" currently in house we live in. Do I have to claim that money on my taxes as income? I'm not running a "rental property" so I haven't been.

Technically yes. If she's not on the mortgage, and she's paying more than her fraction of the utilities, then she's legally a renter, signed lease or not.

2. When buying a new house, we want her name to be on the deed/mortgage. Is this an option, legally? Taxes?

No legal barrier, but it will come down to the mortgage broker to decide whether they want to lend money to a group of "friends." The bank and government don't care who pays that taxes, that's up to you guys, as long as they get paid. If you want to split them easily and have something legal to back it up, you'll need a lawyer to draw up a contract.

3. Legally, can we merge our finances into one account?

Yes. My now-husband and I got joint accounts long before we were common-law, so legally we had no more status than roommates.

4. Are there lawyers out there that can help draw up papers to make everything legally binding? These would be our "marriage/commitment ceremony" documents.

5. Could they help with the equivalent of a pre-nup?

You can draw up contracts for pretty much any agreement two people want to make, and as long as it doesn't violate any laws, it should be binding. Since you can't actually be married to more than one person, you'll need to figure out exactly what legal features of a marriage you want to contractually bind yourselves too, and what would qualify as a "divorce" in the event that things go south, causing the contract to come into play.

You have to be really careful here because polygamy is illegal. While I know no reason you can't have a marriage-like-contract, depending on the jurisdiction it could get dicey. You'll want a good lawyer to do the paperwork and make sure you stay within the limits of the law.

6. Can three people legally adopt children? If she has the babies, can we all be listed as the parents?

Disclaimer: I'm child-free, but I'll try to answer from heresay. I suggest asking an adoption agency, as it will be cheaper than a lawyer. If she has the babies, presumably one of the other two will be the donor? So really it's just a question of whether the dad's spouse can adopt the child. I know that step-parents can usually adopt their spouse's children without removing custody from the other biological parent, but that's a slightly different situation.

 

[Newton]

I also live in NC, so I can help with a couple specifics.

2. When buying a new house, we want her name to be on the deed/mortgage. Is this an option, legally? Taxes?

Who is on the deed and who is on the mortgage don't have to line up, though they often do. If your financial institution is leery about having her on the mortgage, she can still have all the rights and obligations of ownership by being on the deed itself. You just might want to work up a separate contract (like a rental agreement, but different since she would be an owner) to tie things all together.

Additionally, being married (or not) affects property ownership in NC. If a married couple buys property, by default it is held in "tenancy by the entirety", while non-married couples cannot own in that way. I believe it defaults to joint tenancy when the owners aren't married, but I could be wrong and it might be tenancy in common. Regardless, the different types of ownership have legal and financial implications that you want to research carefully, and probably consult a lawyer about.

3. Legally, can we merge our finances into one account?

Sure. Any two (or three, or more) people can have joint accounts for any reason. You don't have to be related, to live together, or even technically know each other.

I would not recommend making all your accounts joint, though - I work at a financial institution, and hear a lot of horror stories about relationships going wrong and one partner draining all of their accounts... which, as an owner, they can legally do and there's literally no recourse for the other partner. It's heartbreaking.

Personally, I live with one partner and a roommate, and we have a single joint checking account which we use for household bills, groceries, rent, etc. All three of us contribute a portion of our income in there every time we're paid. Everything else (personal checking account, savings account(s), etc) is individual. It's not even just about trust - if I didn't trust my partner not to try to steal my money, we wouldn't be dating - but also about legal implications. As we're not married, our individual finances are not up for grabs if the other person dies with debts, nor are they subject to seizure if, say, taxes don't get paid. Only the joint account is vulnerable, and we don't store extra money there.

4. Are there lawyers out there that can help draw up papers to make everything legally binding? These would be our "marriage/commitment ceremony" documents.

5. Could they help with the equivalent of a pre-nup?

Sure, of course. There are lawyers for nearly anything you might want to do. I would recommend researching the specific rights that come with marriage and figure out which ones you want and if they can be approximated in other documents. Health care power of attorney is one example of a document that can grant spouse-like rights to a non-married partner. Designating beneficiaries to life insurance policies or bank accounts in the case of death is another. Etc.

6. Can three people legally adopt children? If she has the babies, can we all be listed as the parents?

Uh... I wouldn't be too optimistic about that, particularly in NC. Schrodinger'sCat is incorrect about this; in general, when a stepparent adopts their stepchild, one of the others is simultaneously giving up all parental rights and responsibilities (hence why their consent is required). This does vary by state, but I don't know if any besides California allow three parents - and even if they do, it's true that much of it is judicial discretion and "we're a big happy poly family" is less likely to work than "we are divorced and both remarried and both new spice play an active role in raising this child and she considers us all her parents".

 

[Ravenscroft]

Some very good advice, overall.

For anything more complicated than joint tenancy or a shared bank account, then you really need to retain an attorney.

In the fullness of time, one or more of you WILL die / resign / move out. Assuming you've got shared assets, how will that (cash & equity) be determined? How long will the household have before being required to cut a check? Who gets the kids if you break up? Who gets the house? How much alimony will you pay? monthly child support? If death, how will you deal with the birth family demanding this portion of their estate? How would responsibility for bankruptcy be handled?

Are there any particular practical reasons you want to do this? or is it kinda being "just like normal marriage, but with more people"? If the former, it might be better to be three equally single people rather than a de jure marriage -- there's nothing preventing you from a commitment ceremony in any case. I'm guessing you're married; consider giving up that privilege before you enter into something that's supposed to be entirely new.

 

[kdt26417]

Hi phantazmagoria,

Re (from OP):

"Girlfriend pays 'rent' currently in house we live in. Do I have to claim that money on my taxes as income?"

Interesting question. Probably not, at least not if she pays in cash and if there's no record of payment.

Re:

"When buying a new house, we want her name to be on the deed/mortgage. Is this an option, legally?"

I'm guessing yes ...

Re:

"Taxes?"

No idea.

Re:

"Legally, can we merge our finances into one account?"

I would assume yes.

Re:

"Are there lawyers out there that can help draw up papers to make everything legally binding? These would be our 'marriage/commitment ceremony' documents."

Hmmm, yes I think so, but be careful. If you go about this in a way that "looks like a marriage" on paper, you may be vulnerable to anti-polygamy laws.

Re:

"Could they help with the equivalent of a pre-nup?"

Same answer as above.

Re:

"Can three people legally adopt children?"

Probably not, though the laws are starting to change.

Re:

"If she has the babies, can we all be listed as the parents?"

Same answer as above.

I'm not an expert, so take all my answers with a grain of salt.

Sincerely,
Kevin T.

 

[SchrodingersCat]

Interesting question. Probably not, at least not if she pays in cash and if there's no record of payment.

!!!!

The IRS and CRA are both very specific on the point that just because income is received in cash without record of payment does NOT make it tax exempt!

Again, it varies by jurisdiction. But I know for a fact that in Canada, if you own a house and you have roommates who pay more than their share of the utilities, taxes, and mortgage interest, then they're giving you money towards your mortgage principle, effectively putting equity in your house which they cannot withdraw at some future date. That's income.

Will they find out about it? Probably not. Can you get away with tax evasion if your gf pays cash? Probably. Does that make tax evasion legal? Absolutely not.

As I understand it, the IRS is ruthless and no dummies either. You'll all have the same address listed on your taxes and they'll probably assume you're not letting her free load. If they audit all of you, will they find cash withdrawals from her account and equivalent deposits to your account, or worse direct bank transfers or cheques?

Another option (which is still illegal, but covers your ass better) is to declare only her third of the utilities, taxes, and mortgage interest as income and claim the corresponding tax deductions, so they'll balance out and you'll have no net tax owing. Get her to e-transfer that amount into your account. Then get her to pay the difference as cash, and keep it out of your account (use it for groceries or whatever). Then if you get audited, you'll have a good paper trail that she was only paying her own expenses and not providing you with income. I re-iterate, this is still totally illegal. But it should hold up in court, providing you'll all willing to purger yourselves in front of the IRS. Good luck!

 

[kdt26417]

I don't know how finances are handled in my V; Snowbunny is basically in charge of that area. I think that all three people's income is pooled in one account, then money is withdrawn from the account for groceries, mortgage, utilities, whatever. I don't think we have a formal system of knowing how much I "pay" for the privilege of living in this house, what little I make (on disability) is just pooled with the general fund, so to my knowledge Snowbunny does not claim income for what little I contribute. This has been the state of things for about ten years, and the IRS has not taken us to task over it.

I suppose it might be a different matter if someone were officially collecting rent, and as I said I'm not an expert so you should take what I say here with a grain of salt. I'm just posting this now to give you an idea why I supposed what I supposed. I'm not part of the legally/lawfully married portion of the V, but I am treated as if all three of us were married to each other. I don't know how it works beyond that, but that is the mindset behind everything we do. Perhaps a tax lawyer should be consulted in this area of things. Better to be sure than to guess based on what you hear on the forum.

 

[Bluebird]

I'm certainly not an attorney, Kevin, but what you are describing sounds like a major issue to me. If you are contributing cash to a household, it needs to be reported. Since you share an account, it'd be easy to prove you were paying. Better get that looked at! If they catch up to you after several years, you could be looking at a hefty payment, when once a year it would have only been a small amount Snowbunny and her hubby had to pay. To be clear - if Snowbunny is receiving income from you, then she needs to claim it on her tax form.


The rent we receive from PunkRock - and now WarMan - is claimed on my taxes too - and it usually bumps me into another tax bracket. I always claimed my son's rent payment too. It sucks, but it's safer to not have to stress about it.

 

[kdt26417]

So, I have had Snowbunny read the last three posts above, so, she is now aware of the problem. I think that my case is a little different because I "make" (disability) less than $9,000.00 per year. Technically my income level is so low that I'm not required to file a return, but Snowbunny files one for me anyway. Also, on her/Brother-Husband's return, they are claiming me as a dependent, which I think they can do because my contribution adds up to less than half the cost of my upkeep. I could scour Snowbunny's brain and her records for more info, but a) I don't want to trouble her any further, b) I'm not comfortable discussing my tax/financial situation out in public like this, even though the names are aliases.

Also I think that my situation is different enough from phantazmagoria's that I have managed to lead the thread off-topic. Let's just say Snowbunny is careful about what she does, has no desire to cheat the government, doesn't think she is, and isn't worried about the IRS. TurboTax didn't detect any problems, and when she sent the returns out, the program reported that they were at low risk for audit.

I hope this clarifies some things. If you want to discuss my situation more I suggest doing it by PM. Though I have to warn you I won't have much more information to give. I am not an independent person. I rely on Snowbunny to handle these sorts of things, and so far, she has led me to comfortable places. That's all I ask.

Regards,
Kevin T.

 

[Bluebird]

Gotcha, Kevin. That actually sounds legit.

 

[JaneQSmythe]

The last time I read it, the wording for claiming someone as an "dependent" in the federal tax instructions required that they be some sort of "relation" (this hasn't always been the case).

Because MrS and I are legally married, I file a joint tax return for the two of us. We don't claim Dude as a dependent. For tax/legal purposes we basically treat him as a permanent non-rent paying couch-surfer.

You can put whomever you want on a bank account or credit card.

When we bought our Forever Home, MrS (who is not on the deed) had to sign the mortgage note even though he is not legally responsible for payments, basically saying that he recognized that the bank had first claim/lien to the property in case of divorce. (This was a policy of the bank that we used as we required a "non-conforming" mortgage for our property, not actual state law - but I had to talk to the bank's lawyer NOT the mortgage adviser to get the whole thing straightened out. PA is NOT a community property state!)

You can also name other people as "beneficiaries" for various things (IRAs, life insurance, etc.) - although in some cases (such as pensions) a spouse must "sign-off" on it. (As I found out when I rolled over my pension into a 401K/403B).

 

[IndieSolo]

There is a difference between rental income from a tenant or boarder and money contributed by a housemate or family member for their share of the expenses. The latter isn't *income* per se. It's important to know what is and isn't considered income.

I am very certain that you're only making an income with a property if you're renting out a separate space that you don't live in and that person has *exclusive use* of it - that makes you their landlord and the money they give you is income. Renting out property is a business, and you are providing exclusive, private space or a piece of real estate in exchange for rent - that is why that would be considered income, and taxable. And you can deduct the expenses incurred for renting that property.

However, if you live in the same space with that person, with a shared budget and shared bank accounts, and there is no space they are using exclusively, you're all just sharing expenses! What you're getting from them is not *income* - and income is what you report. Think of it this way: if you were to go out to dinner every Friday night with a friend and each week they give you their share of the bill in cash, and then you pay that bill with your credit card, the money they handed you is not considered income - it's just their share.

A joint living situation simply means everyone is kicking in their portions of the bills for rent, utilities, groceries, etc. It's not a boarding house or hotel, which would have a different set of tax obligations, even if there are four people contributing. For example, the IRS automatically assumes that living expenses are shared by a married couple who reside in the same house. Unmarried people living and sharing a home together means there is the same situation of sharing expenses that apply to a married couple.

If you're not renting a private room or providing some other service in return for the money, it isn't the same thing as rental income. It's not an income-producing business, and there is no profit above your costs. At the most, the only taxable part of a housemate's share would be for any areas that are exclusively used only by that person and no one else. If you do that, though, you can also take deductions for expenses as well. Or if you were renting from a landlord and then your housemates' shares provided you with monies above what you pay in rent - that is more than just sharing expenses. Then that portion above the total rent would more likely be considered income (unless you used it for utilities and food which you distribute to everyone - that would make it shared expenses again).

Income is earned. Same reason why you don't have to report money you make from holding a garage sale - you are sitting in your front yard selling your old, used crap. That is not income. However, if you purchase goods with the intent to sell, that makes it a business, and the money you make on that is considered taxable income.

 

[kdt26417]

Re (from JaneQSmythe):

"The last time I read it, the wording for claiming someone as a 'dependent' in the federal tax instructions required that they be some sort of 'relation.'"

Okay, so I have now informed Snowbunny of that problem. I have to say that she's less than pleased, but she is now aware of it. She doesn't believe the info is accurate, and neither do I. I think if it were accurate, TurboTax (especially given Snowbunny's vigilance) would have caught it.

From www.efile.com ... I must meet four requirements in order to be considered a Qualifying Relative:

• First, I can't be a qualifying child. Obviously I'm too old for this to apply.
• Second, I have to have lived with Snowbunny (and Brother-Husband), for the entire year of 2015, as a member of the household. Alternatively, I could be a relative in more conventional terms, but that's not necessary since I definitely lived with Snowbunny (and Brother-Husband) for all of 2015.
• Third, my gross income for 2015 must be less than $4,000.00 ... and while I received more than that in disability, I didn't actually earn the money therefore it doesn't count as income.
• Fourth, I had to provide less than half the funds needed to support me during 2015. I easily meet this requirement.

The exact address for the above information is http://www.efile.com/qualifying-relative-child-friend-parent-dependent-exemption-test/ and it was located (just now) by Snowbunny.

Another helpful link (also found just now by Snowbunny) is http://blog.turbotax.intuit.com/tax...girlfriend-or-boyfriend-as-a-dependent-21025/ ... and this one is more clear on my income part. I have zero taxable income.

I apologize for pushing this thread off-topic again. If you want to further discuss my tax situation, please do so by PM (or at least start a new thread).

 

[SchrodingersCat]

My advice: Consult a lawyer or accountant for the final word. The internet is good for many things; legal advice is rarely one of them.

In most cases, you must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property.

The room is property, the girlfriend occupies it, the owners receive payment for its use.

Renting Part of Property. If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property.

You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity or painting the outside of the house.

How to divide expenses. If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. You can use any reasonable method for dividing the expense. It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home.

Dwelling Unit Used as a Home. If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home.

It's legally no different than renting your spare room out to some college kid. They both use your kitchen and bathroom. They both have the right to close their bedroom door and expect privacy. There's no comment in the tax law regarding whether your relationship to your tenants is professional, platonic, sexual, or romantic. The IRS only cares about your financial relationship: does money flow from their hands to yours in exchange for the privilege of occupying your property? If the answer is yes, then it's rental income.

If you're not renting a private room or providing some other service in return for the money, it isn't the same thing as rental income. It's not an income-producing business, and there is no profit above your costs.

I concede that if the girlfriend has no privacy in her bedroom, and the owners can put her on the couch when their parents visit, then she's not renting the room. Otherwise, her room is her exclusive space and they do have profit above their costs: the amount of her payments above her share of the utilities, taxes, and mortgage interest, which goes towards the mortgage principle. When they sell the house, they get to keep that and she doesn't get a penny. That's profit, and profit is income.

Think of it this way: if you were to go out to dinner every Friday night with a friend and each week they give you their share of the bill in cash, and then you pay that bill with your credit card, the money they handed you is not considered income - it's just their share.

Think of it this way: if you go out to dinner every Friday night with your friend at the restaurant he owns, and you give him cash for your meal at the end, it's a sale. The fact that you're friends is irrelevant. Your analogy is more appropriate for three friends renting an apartment together. Two of them give their rent as cash to the third, who writes a cheque and gives it to the landlord.

Same reason why you don't have to report money you make from holding a garage sale - you are sitting in your front yard selling your old, used crap.

The main reason you don't have to report revenue from a garage sale is that you're selling at a loss. There's no legal difference between being a hoarder who periodically sells all their crap, and being a flea market scavenger who buys cheap crap with the intent of selling it. The only reason the IRS doesn't care about garage salers is that they're losing money, and if they declared anything it would be capital losses claimed against their investment income.

 

[SchrodingersCat]

Also, on her/Brother-Husband's return, they are claiming me as a dependent, which I think they can do because my contribution adds up to less than half the cost of my upkeep.

The last time I read it, the wording for claiming someone as an "dependent" in the federal tax instructions required that they be some sort of "relation" (this hasn't always been the case).

This should help: Who Can I Claim as a Dependent?

 

[Dagferi]

Kdt.. if poly is technically illegal where you live according to the irs Snowbunny CANNOT claim you as a dependant.

 

[Ravenscroft]

My advice: Consult a lawyer or accountant for the final word.

Exactly!! Tax authorities want their cut -- period. Garage sales? Pfeh: not worth the paperwork, much less investigation. How many garage sales net hundreds of dollars a month, much less gross?

I fritter away hundreds of dollars a year on regulated gambling. The nickel-dime stuff is hardly worth tracking, though there are forms that'd let me balance my losses against significant wins. HOWEVER, in Minnesota, every time that I win $100 or more, the vendor scans my driver's license & I physically sign a verification slip, just in case I go on a winning streak & start racking up a thousand bucks or more a week.

And they're also on patrol about tax dodgers. Let's say I "rent a room" to someone who pays me $5,000/month, all of which I put toward "our" mortgage. If I'm making (say) $40,000 from my day job, & have no other declared income, yet I'm living above my income level, the IRS might have some pertinent questions as to where that cash is coming from -- drug sales perhaps. In that case, I might soon find myself audited, & rightly so.

If you call up the IRS, they'll pleasantly tell you which line you use to enter ALL such income -- every last damn penny -- & which lines you might use to properly deduct verifiable related expenses.

 

[SchrodingersCat]

Garage sales? Pfeh: not worth the paperwork, much less investigation. How many garage sales net hundreds of dollars a month, much less gross?

Even if they did, you probably spent a thousand dollars buying it all in the first place. And to claim the capital loss, you'd have to have all your purchase receipts and copies of invoices from the sale... who invoices at a garage sale? (Actually, I've been asked for receipts at garage sales before, usually teachers buying things for their classroom.)

And they're also on patrol about tax dodgers. Let's say I "rent a room" to someone who pays me $5,000/month, all of which I put toward "our" mortgage. If I'm making (say) $40,000 from my day job, & have no other declared income, yet I'm living above my income level, the IRS might have some pertinent questions as to where that cash is coming from -- drug sales perhaps. In that case, I might soon find myself audited, & rightly so.

This reminds me of my tax course, where the instructor casually mentioned the CRA (the Canadian IRS equivalent) doesn't care if you're a drug dealer or pimp... as long as you declare your sales.

 

[IndieSolo]

I Googled around and found several statements from tax professionals who say that sharing expenses in a household is not the same as renting out a room or real estate (at least in the US). Renting to a tenant = taxable income. A roommate or housemate sharing expenses = not income, especially in situations where all people living together commingle their funds in the same bank accounts. If I have time, I'll find the links again and share them.

The stuff you posted from the IRS website, SC, applies to renting out real property, even the "shared property" part. A tenant is not the same as a roommate/housemate/live-in lover. As I see it, that doesn't apply to a couple, throuple, or more, living together in a romantic relationship.