We have all seen married couples celebrating togetherness. Some eat off the same plate. Some register cars with joint birthdates. Some wear tattoos of the partner’s name. Have you extended the joy of being a couple by ensuring that your financial assets are also in joint names? You should consider doing it now, seriously.
Jointly owning assets — residential property, equity shares, mutual fund investments, bank accounts, bonds, fixed deposits, insurance policies — has clear benefits. The husband and wife are deemed by law to have equal implicit ownership rights in assets they jointly own. No questions asked about who funded the asset and in what proportion. Unless there is a specific signed agreement, which indicates the shares of each spouse, the asset is owned in a 50:50 ratio.
The operational benefits are well known. The spouse of a travelling busybody can transact and operate investments, bank accounts, and credit cards without hassle. In these days of electronic alerts and e-statements, it is easy to keep track. The spouse who wants to manage can do so without involving the other. If some finicky couples insist on operating jointly with both parties signing, there are facilities for that too. What is important is that asset ownership is joint and equal. The first holder is only the first among equals and will receive cheques and notifications in their name.
In the unfortunate event of a death or divorce, joint ownership significantly reduces paperwork. The rights of a joint holder are superior to the rights of nominees. We have heard horror stories of children failing to care for widowed mothers. If she were the joint owner of the house, bank accounts and investments, she would continue to own them after her husband’s death. No fresh registration or probates are needed for a joint owner to inherit assets after the co-owner’s death. Nor in the case of a divorce can an estranged wife be cheated of her share in the assets if they are already in her name.
For joint ownership, it is not even required for the couple to contribute equally to the asset. There is an implicit gifting element in jointly owned assets. Therefore, the actual proportional contribution does not matter. If the couple is keen to declare their contribution, or claim a tax benefit, then a simple agreement showing the proportionate ownership is enough to divide a housing loan repayment such that both partners can claim tax benefits.
Is there a downside? You bet! The taxman will allow one spouse to gift as much as they please to the other. However, you cannot take that too far and build income-earning assets in the name of a spouse who has no income. For example, the husband can buy a house in the name of his non-earning wife. When the house is rented out, the rental income will come to the wife but be taxable in the hands of the husband. This is because the Income Tax Act has ‘clubbing provisions’. The asset is tax-free but the income from it is taxable in the hands of whoever earns the higher income. Also, loans cannot be taken against a jointly owned asset without the consent of the other party. And both parties are equally liable as well.
A woman must take control of her finances, whether she is earning or not. The best way to begin participating is by jointly owning assets with her husband.
Taruna Changulani, a chartered accountant, is Director and Co-founder of the Centre for Investment Education and Learnin