For women, it is important to build an emergency fund and a financial independence fund independent of the couple's joint goals and plans.
India's wedding season is coming. There were 3.2 million weddings November to December last year, with an expenditure of Rs 3.75 trillion, according to Nikkei Asia and the Confederation of All India Traders.
When Indians marry, they usually bring together their finances.
Soni K, who is a digital marketer in Mumbai, says she has already planned her finances before her wedding in December.
"We have decided to have separate assets, but will go for joint liabilities and expenses," says Soni about her fiancé.
Soni's parents are teachers and want her to merge all her finances with her future spouse. (Soni's real name has been changed for this story.)
"In current times, when both husband and wife are working to achieve their financial goals and trying to strike a balance between maintaining their lifestyle and saving for the future, one cannot have a cookie-cutter approach," says Jinal Mehta, a certified financial planner and founder of Beyond Learning Finance.
Assets, liabilities
When assets and liabilities are consolidated, both spouses have a clear understanding of their finances.
"As a result, managing finances becomes easier because fewer accounts, bills, and financial institutions need to be managed, and aligning financial goals and working together to achieve common goals is easier," says Adhil Shetty, CEO, Bankbazaar.
Consolidation requires the equal participation of both spouses. One partner may lose financial independence if the other manages the finances exclusively.
"In addition, combining liabilities may affect credit scores and creditworthiness, and the lower credit score or financial issues of one spouse may affect the other spouse," says Shetty.
"When making joint investments, ensure that both spouses are equally informed about the investments and have legal ownership rights. This transparency can prevent disputes in the future," says ColONE; Sanjeev Govila (retd), CEO, Hum Fauji Initiatives, a financial planning firm.
Before they wed, a couple must decide who would handle the money.
"The couple should discuss how spending will be shared.
"Many Gen Z and Gen Y couples are considering keeping their assets separate, and some are even drawing up pre-nups to protect assets after marriage," says Dilshad Billimoria, board member, Association of Registered Investment Advisors.
A prenuptial agreement (pre-nup) is a contract executed between spouses before matrimony, containing settlement terms in case of future discord.
"Such an agreement, being opposed to public policy and executed without a legal object, is not a legally enforceable contract," says Ankur Mahindro, managing partner of Kred Jure, a law firm.
"Although prenuptial agreements are not binding, Indian courts could consider them to gain insights into the intention of the parties involved.
Courts have considered pre-nups for deciding the issue of separation of assets among the parties.
"Therefore, it is only advisable for couples to draw ‘prenups' with the help of experts, which may be useful to them in the future," says Tarun Agarwal, an adviser and managing partner at TBA Legal.
Separate assets, joint liability
Like Soni, many want to keep investments separate but go for joint liabilities and expenses. Is it a good idea?
"Buying a good asset like a home on loan is a good thing, and if both spouses are working, it is recommended to separate the loan agreement and the EMIs for an equal share and for the purpose of claiming tax benefits," says Billimoria.
Owning a home in a joint name is a good thing, with equal ownership of the property.
"However, if one spouse buys a car, for example, the EMIs should be borne by the same person because there is no such tax benefit if the other person contributes, besides helping reduce the EMI burden," says Billimoria.
All properties, moveable and immovable, bought by spouses post-marriage are termed marital property.
"Similarly, all liabilities also become joint, such as debts and mortgages, leases, and other such expenses of considerable value. Even today, there is a fair amount of confusion among people as to what should be considered marital property and what constitutes individual property," says Ekta Rai, an advocate at the Delhi high court.
However, things bought by spouses post-marriage with their combined incomes, as well as those bought by one but used extensively by both, gifts received at the wedding, and any such property that is created post-marriage, are to be considered to be in equal ownership of both parties.
Some experts recommend discussing the importance of maintaining separate ownership of certain assets, particularly those acquired before marriage.
Splitting income
In India, it's pretty common to split monthly household income amount-wise. Say monthly expenses are Rs 50,000, then the spouses shell out Rs 25,000 each.
"That's equal, but it's not fair. So calculate your expenses and then split them as per your income," says M Barve, founder, MB Wealth Financial Solutions.
In the example, when both spouses shell out Rs 25,000, it's an equal amount. But assume that the wife earns Rs 1 lakh while the husband earns Rs 50,000. Then the wife has contributed 25 per cent of her income, while the husband has to share 50 per cent.
The one earning more will have ample to spare for personal wants and assets, which isn't too fair for the other.
"With individual tax files, both need money in hand to invest, save, and spend based on individual needs and risk appetites.
"Financial incompatibility is the biggest cause of divorce in the world. Imagine one is a high-risk investor while the other is risk-averse," says Barve.
For women, it is important to build an emergency fund and a financial independence fund independent of the joint goals and plans of the couple.
"It's important to maintain separate bank accounts, separate public or government accounts like employee and public provident fund, which the individual can consider their personal investment," says Billimoria.
Personal finance is first personal and then financial. So many experts think that when it comes to expenses, instead of getting stuck on amounts or numbers, there should be a basic understanding of who spends on what.
"One spouse can bear regular household expenses, and the other saves money for travel or the purchase of any expensive or luxury items," says Mehta.
That is why the hybrid approach seems wise to many.
"In some cases, a partial consolidation, where certain assets and liabilities are jointly managed while others remain separate, may strike a balance that works for the couple," says Shetty.
Feature Presentation: Ashish Narsale/Rediff.com
