Sunday, August 7, 2011

How to split joint property - CREDAI-NCR

How to split joint property - CREDAI-NCR

How to split joint property

The Economic Times

Tax consultants often advise couples to take a joint loan to buy a property so that both spouses can avail of the tax benefits on the loan. It's also common for siblings to pool in resources to purchase a property they could not have bought on their own. In both circumstances, the joint-ownership translates into benefits for the owners.

But joint-ownership of property is a double edged sword. It can lead to legal and financial complications if the co-owners decide to split. Unlike a financial asset, it is not easy to split a built up property in a way that it satisfies all the affected parties. If the property is mortgaged, it adds another twist in the tale.

The difficulties involved often make the advantages of going in for a joint property-be it tax benefits, or the ease in transferring property to your progeny-pale in comparison. When Bhaskar Bharat established a Hindu Undivided Family (HUF) in 2007 to save on tax, he had not taken into account the complications of the joint ownership structure. The Mumbai-based businessman is now worried about how to split the property owned by the HUF and distribute it among the co-owners.

However, there is a clearly laid-out legal mechanism in place to tackle such situations. All you have to do is to file a partition suit. The way your share gets calculated and divided depends on the type of the property in question. That is, getting your share in a property owned by an HUF that has multiple co-owners is very different from dividing a self-acquired flat. Here's a look at the rules that govern the splitting of different types of properties:

Self-acquired property

Be it a plot of land, an apartment, or an independent house, the rules for self-acquired properties are similar whether they are jointly owned by a couple or by siblings. When the property is held in the name of one's spouse, the other partner automatically becomes a co-owner. Says Ravi Goenka, solicitor at Goenka Law Associates: "A wife becomes the 50% co-owner of a property on marriage."

In case of a divorce, the court may order the land to be divided equally and the share of the separating partner to be given. Alternatively, one spouse may buy out the partner's share by offering monetary compensation. A spouse can also issue a surrender deed or a gift deed and hand over his/her share to the separating partner. In such a situation, the deeds have to be registered at the registrar's office after paying the applicable stamp duty (from 5% to 12.5% in different states). However, it is important to note that one's property rights have to be transferred before the final divorce decree is passed, otherwise the transaction is treated like normal sale and the regular stamp duty will be applicable instead of the 2% duty that applies to a gift deed. "In the case of a surrender deed, the person who gets the property would have to pay a stamp duty of 5% of the market value of the property," says Anjana H. Chheda, legal advisor to the Maharashtra Chamber of Housing and Industry.
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