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Jointly-held accounts, investments may not be evenly split when couples seperate

Marriages can break-up despite years of togetherness, like Bill and Melinda Gates'. Maintaining separate bank accounts and investments, with proper nomination help in untangling assets.

May 11, 2021 / 02:50 PM IST

The news of Melinda and Bill Gates’ separation came as a big surprise to most of us. And it has kept us guessing on the reasons, especially since they are going their separate ways after being together for 27 years. It raises a very important concern on the management of the personal assets between you and your spouse. While relationships are built on the concept of togetherness in multiple spheres, situations such as these necessitate a relook at the financial planning aspect.

Marriage does not guarantee an equal split

Under law, it cannot be assumed that jointly-held assets are not necessarily owned equally between the owners. Joint bank accounts also cannot be assumed to be owned equally between husband and wife. Upon the demise of the first holder of a joint account, the bank allows the second holder to continue operating the account. However, in the event of this arrangement being countered by way of a legal notice or an interim court order (as this is the requirement under the applicable RBI Guidelines), banks have to freeze the debit operations in such jointly held accounts and wait for a resolution to the dispute and clear instructions from either the parties concerned or an appropriate court order.

While drafting Wills for clients, I often discuss the details of whether the jointly-owned property is to be presumed as legally joint. Or, whether there is a difference in understanding and that a jointly owned immoveable property has actually been purchased by one person and the name of the second joint holder has been added only for convenience or out of love and affection. It should be kept in mind that while making a will covering a joint property, you can only provide for your share of such property in your will. It is always recommended that the Wills of the husband and wife be mirrored with respect to the beneficiary, to reduce disputes amongst the legal heirs at a later date.

Maintain clean records to avoid confusion

Practical succession planning requires the following to be considered and is also recommended by financial advisors:

-Maintain separate bank accounts and investments in the names of the husband and wife, with proper nomination. This is helpful while filing your income tax returns. Contrary to popular perception that jointly-held accounts are automatic after marriage, it’s actually beneficial in the long-run to keep money lives separate. Because, while filing your respective income-tax returns, separate records need to be maintained to establish a clear trail of funds.

-In the case of joint ownership of property, your income tax return should capture the details of the property in equal proportion – you and your spouse – if this is the intention, with the source of funds duly examined as per tax advice.

-Nomination for all investments, bank accounts, lockers and insurance policies should be specified. At times, it’s easier to pass on the assets to the nominee than to the second account holder.

-A Will should be drawn out carefully by listing both moveable and immoveable assets and also the names of beneficiaries and contingent beneficiaries should be clearly stated;

-All nominations and Wills should be re-visited in case of any birth, marriage or passing away of a family member;

-A nominee is only a trustee under the law. So, nomination must be backed with a proper will.

-Real estate, wherever held in joint names, makes the joint holder equal owner unless otherwise specified in the conveyance document, though the tax treatment may be different. Sometimes, a couple may have both their names on a jointly-held property. But in reality, only one partner may have paid for it. Or only one spouse may be paying the equated monthly instalments (EMIs) on the home loan. Hence, in a jointly-held property, it is always advisable to mention clearly in the sale deed the extent of ownership of both husband and wife, in terms of, say, percentage holding. In case of separation later, it’s easier to untangle the property.

There have been instances when joint assets have been purchased in the name of the husband and wife and, at times, siblings. When the going is good, there is nothing to worry. However, if there is any dispute of any nature, these assets are stuck and cannot be sold / used by one person singly, leading to a locking of assets. It may take several years for the dispute to be settled, with or without Court intervention. So joint assets need to be carefully planned at all times.

Anju Gandhi is a Partner at SNG & Partners
first published: May 11, 2021 10:00 am