Divorce can be a taxing affair. Therefore, preparing for your finances is just as important as seeking legal counsel.
Divorce can be a taxing affair. Needless to say, there are many changes and challenges that one is exposed to under such circumstances, financial ramifications being a crucial element in it. And amidst all the emotional trauma, one may ignore the financial nitty gritty of a divorce or just not be savvy enough to understand the implications. However, preparing for your finances is just as important as seeking legal counsel. And here are some quick areas you must focus on.
The Law That Governs Your Marriage
In India, each religion has its own law pertaining to marriage and your rights over each other’s income and assets are defined by the specific law. However, if your marriage is registered under the Special Marriages Act, the onus of proving the spouse’s ability to pay for the alimony or maintenance lies with the one who makes the claim.
Nuances of alimony
Typically, a woman who is dependent on her spouse financially is entitled to alimony, allowing her to have a lifestyle equal to that of her spouse. This also holds true if there is a huge disparity in the income earned between the woman and her husband. The spouse can claim alimony in the form of a one-time payment or monthly payments dubbed as maintenance. The size of the alimony is determined basis the husband’s earning capacity, assets and liabilities, and standard of living.
While both parents are responsible for the welfare of children, the spouse who gets the custody receives payment for education and other expenses, either as a lump sum amount or in parts at different stages of the child’s life, adjusted for inflation.
Investments can also be made in the name of the child with either parent marked as the guardian. However, for investments such as property, even though the mother may have the legal custody of the children, the father is recognised as the guardian. The mother is only considered to be the guardian if the father is ‘absent’, a term loosely defined by the law.
In case you suspect any threat to your children’s welfare arising from the divorce, you can set up a trust with your children as beneficiaries and park assets and investments for them there.
Joint finances and assets
In a recent development, the Delhi High Court has made amendments to the Prevention of Benami Property Act to challenge the rights of a wife on any assets in her name financed by the husband. So, if the husband can prove that he has paid for the asset in his wife’s name, he can claim a share as well. However, ‘streedhan’, defined as any gifts given to the wife before, during, or after the marriage are solely hers.
When it comes to joint assets such as a property, the law evaluates each spouse’s contribution to the purchase and awards ownership accordingly. However, in case of joint bank accounts both spouses have equal right, irrespective of the size of the contribution made by each.
Your finances goals
Last but not the least, you need to continue working towards your financial goals. Post-divorce, you may need to shift from a double-income to a single-income unit. So, it is important for you to evaluate your finances, cut back on expenses wherever possible and reinvest to maximise your personal wealth. If you have received alimony from your spouse or lump sum child support, it is a good idea to invest the money to ensure the returns beat inflation.
Classify your goals into short-term, medium-term and long-term categories and plan your investments accordingly. If you need help with handling the increased financial responsibilities, consider seeking expert advice.
(The writer is CEO, BankBazaar)