For families with a high income, deciding whether to place family assets under a spouse's name is a complicated issue that can have significant legal and financial effects. This choice concerns more than just who owns the assets; it also involves preserving wealth, preparing for what lies ahead, and ensuring the family's well-being.

Community Property States vs. Equitable Distribution

In the U.S., laws regarding property differ from one state to another. States known as community property states, including California, Texas, and Arizona, typically regard any assets obtained during a marriage as owned by both partners, regardless of whose name appears on the documents. For instance, if you buy a luxury vacation home while married in a community property state, your spouse would have an equal right to it, even if it is only in your name.

On the other hand, in places that practice equitable distribution, such as New York and Florida, the court aims to distribute the assets of a couple fairly when they divorce, but this doesn’t necessarily result in an equal division. In this scenario, who holds the title is significantly important. If you possess a valuable investment property solely under your name, the court will evaluate several factors to decide on the division, including your role in acquiring the property, your spouse’s contributions to the relationship, and how long the marriage lasted.

Transfer of Title and Gift Tax Implications

Putting a partner's name on the title of a property is seen as a legal transfer and usually does not incur gift tax because of the unlimited marital deduction. However, this action can significantly affect future capital gains taxes. For instance, if you add a spouse to a commercial property owned before marriage that has increased in value, it can change the cost basis, influencing the taxes when you decide to sell the property later.

Asset Protection

Property that is jointly owned provides some level of defense against creditors. If one partner encounters legal troubles or business debts, it may be difficult for creditors to take over the whole property—this means, for example, that a family home shared by both partners might not be fully taken in a business lawsuit. On the other hand, if a partner has bad credit or has mismanaged finances in the past, joint ownership could put shared assets at risk of being claimed by creditors through possible liens.

Estate Planning and Inheritance

Owning property jointly with rights of survivorship makes inheritance easier because it automatically passes the property to the spouse when one dies, avoiding the long probate process. This is particularly helpful for wealthy families who own complex assets, like extensive real estate holdings, as it saves time and money. On the flip side, this arrangement can create issues if someone wishes to leave property to children from a previous marriage, leading to the need for detailed wills or trusts to make their wishes clear.

When considering putting a spouse's name on property titles, it is important to weigh the legal and financial implications. Families with high incomes should seek advice from legal and financial professionals to ensure this decision supports their long-term goals for wealth protection and estate planning.