Accredited Investor Spousal Equivalent Rule

The accredited investor spousal equivalent rule, enacted by the SEC in 2020, allows unmarried domestic partners in a committed relationship to combine their finances—income, net worth, or both—when determining whether they meet accredited investor thresholds, placing them on equal footing with married couples and eliminating prior legal ambiguity around non-traditional families.

What changed in 2020

Before the amendment, the SEC’s accredited investor definition under Rule 501 referenced “spouse” but did not explicitly address unmarried partners. Regulators treated many domestic partnerships as single individuals, meaning each partner had to meet thresholds independently ($200,000 annual income or $1 million net worth, excluding their residence). Married couples could combine incomes ($300,000) or net worth, creating a structural advantage.

This created two problems:

1. Ambiguity: Issuers and investors disagreed on whether unmarried couples could combine finances. Some issuers allowed it on a case-by-case basis; others refused on principle, citing the plain language of “spouse.”

2. Discrimination: Same-sex couples who could not legally marry (in some jurisdictions prior to 2015) or who chose not to marry faced a compliance and economic disadvantage. Heterosexual couples who cohabited without marrying faced the same issue.

The SEC’s 2020 amendment added language to Rule 501(d) recognizing “spousal equivalents”—a legal category that includes registered domestic partnerships (common in California, Nevada, and other states) and common-law or informal domestic partnerships documented through cohabitation, shared finances, or formal partnership declarations.

The definition of “spousal equivalent”

The SEC did not prescribe a single legal form. Instead, Rule 501(d) states that accredited investor status can be calculated using the income or net worth of a person and their “spouse or spousal equivalent.” A spousal equivalent is defined as:

• A person who is in a committed relationship with another person;
• And who reasonably represents that they share a principal residence with that person;
• And who, if required to do so by the issuer, can provide documentary evidence of the domestic partnership.

Key points:

• Committed relationship: Not legally defined in the SEC rule; assumed to mean partners who consider themselves in a long-term or indefinite relationship (not casual dating or temporary cohabitation).
• Shared principal residence: Both partners must live together as their primary home. If one partner maintains a separate residence, the spousal equivalent status may not apply.
• Documentary evidence: The issuer can require proof. Common acceptable documents include:
  • State-issued domestic partnership certificate
  • Joint lease or mortgage
  • Joint bank or investment account statements
  • Tax return filed as domestic partners (where allowed)
  • Affidavit of domestic partnership (notarized declaration)
  • Marriage certificate (even if from a prior relationship, to establish cohabitation history)

How it works in practice

When an unmarried couple applies for a private placement or seeks to invest in a hedge fund or private equity fund, they can present their finances in one of three ways:

Option 1: Combined household income

• Combined annual income ≥ $300,000 (same threshold as married couples).
• Each partner contributes their salary, bonus, capital gains, rental income, or other ordinary income.
• Example: Partner A earns $180,000; Partner B earns $130,000. Together, $310,000, and both are accredited (if net worth is also sufficient or if income alone is the test).

Option 2: Combined net worth

• Combined net worth ≥ $1,000,000 (excluding the couple’s principal residence, same as married couples).
• Each partner’s net worth is calculated independently (assets minus liabilities), then summed.
• Example: Partner A has $600k in investments and $400k home equity (excluded); Partner B has $300k in savings and $200k in a business stake. Combined: $1,100k, both accredited.

Option 3: Combined income and net worth

• Some issuers allow a mixed test: e.g., one partner’s income plus combined net worth. Rules vary by issuer; check the specific private placement agreement.

Documentation and verification burden

Issuers have a due diligence obligation to “reasonably verify” accredited status. For spousal equivalents, this means:

• The issuer may request a declaration of domestic partnership (a notarized affidavit signed by both partners, stating they are in a committed relationship and share a residence).
• The issuer may ask for one or more of: joint bank statements, joint lease, state domestic partnership certificate, or mortgage in both names.
• The issuer may ask for a personal financial statement (PFS) from each partner, detailing assets, liabilities, and income, certified as accurate.

No single form is required. The SEC leaves it to issuers and investors to agree on acceptable proof. In practice:

• Large issuers often use a standardized affidavit or checklist.
• Some states (California, Nevada, Oregon, Washington, Illinois, New York, Maine, Vermont) have formal domestic partnership or civil union registries, making verification simple: a state certificate suffices.
• In states without formal domestic partnership status, an affidavit combined with lease or bank statements is common.

Issuers cannot demand intrusive documentation (e.g., proof of sexual relationship or child-rearing). The SEC’s guidance emphasizes reliance on reasonable representations and reasonable verification, not gotcha audits.

Tax and marriage implications

Federal tax: If a couple files federal income taxes as “married filing jointly,” that is strong evidence of domestic partnership and accredited status. If they file as single, that does not disqualify them—they can still qualify as spousal equivalents so long as they meet income or net worth combined and can document the partnership. Some couples file as single for tax reasons (e.g., to preserve child tax credits or education benefits) even though they are in a committed domestic partnership.

State marriage laws: The rule is independent of state marriage law. A couple recognized as married in one state and not in another can still claim spousal equivalent status as long as they meet the SEC’s criteria and can document it.

Common-law marriage: In states that recognize common-law marriage (e.g., Texas, Colorado, South Carolina), a couple may be common-law married without a formal certificate. If they can prove the elements of common-law marriage (intent to marry, continuous cohabitation, public reputation as married), that evidence can support spousal equivalent status.

Comparison to married couples

The rule brings unmarried couples into functional parity with married couples:

The main practical difference is that a couple must re-verify the domestic partnership for each investment (or at least each issuer), whereas a marriage certificate is permanent proof.

Edge cases and limitations

Scenario 1: One partner is accredited, the other is not. If Partner A alone meets the threshold ($200k income), Partner A is accredited. If they want to qualify as a couple, Partner B must contribute enough to reach the combined $300k threshold. If Partner B contributes $50k and Partner A contributes $180k, the total is $230k—short of $300k, so neither qualifies as part of an accredited couple. Partner A does not qualify as a single accredited investor either (below $200k), so the couple cannot invest together in Rule 506 offerings.

Scenario 2: New partners or dissolution. If a spousal equivalent couple breaks up, each partner reverts to single status. New investments must be re-evaluated under single thresholds. If a new partner joins, they must re-verify as a new couple (and the combined finances may not support accreditation).

Scenario 3: Interstate couples or multiple state residences. If one partner works in State A and one in State B but both maintain a principal residence in State A, that works. If they split time equally between two homes, they must establish which is the “principal residence” (where they file taxes, have driver’s licenses, etc.). The SEC’s guidance does not require exclusive residence; a principal residence simply means the shared home where they primarily live.

Scenario 4: Reverse splits or income loss. If a couple qualifies one year but then loses income or assets, they must re-verify for future investments. Issuers may rely on prior documentation for a period, but if financial circumstances materially change, the couple should notify the issuer.

Regulatory context and safe harbor

The SEC adopted the spousal equivalent rule as part of a broader modernization of Regulation D to ensure consistent treatment across family structures. The rule applies to all Reg D exemptions—Rule 504, 505, and 506 offerings—and interacts with other exemptions that reference “accredited investor,” such as Regulation A and certain intrastate offerings.

The rule does not override state Blue Sky laws. Some states have adopted parallel amendments; others have not. An issuer conducting a multi-state offering should verify that the targeted states recognize spousal equivalent status. Most do, but a few conservative states may still require marriage or formal state partnership registration.

Documenting the partnership

A simple affidavit template:

“I [Name] declare under penalty of perjury that I am in a committed domestic partnership with [Partner Name], that we have shared a principal residence at [Address] since [Date], and that our combined household income for [year] was $[amount], or our combined net worth (excluding principal residence) is $[amount]. I understand that this declaration is made in connection with an investment offering.”

State-specific forms may be required. California has a registered domestic partnership form; other states may have similar documents. An attorney licensed in the couple’s state of residence is advisable for initial setup, especially in multi-state contexts.

See also