Understanding Divorce in India: A Financial Perspective

Key Takeaways

1. A divorce doesn’t just mean a legal separation. It also significantly impacts the financial aspects of one's life. Understanding this can help safeguard individual financial interests.
2. Liquid assets, joint assets, and alimony payments are a few key areas concerning finances during a divorce.
3. Taking certain steps before getting married, such as creating a will or a family trust, can protect one's assets in case of a future divorce.

Divorce Rates in India

India might have some of the lowest divorce rates globally (around 1%), but it doesn't mean divorce is a rare occurrence in the country. The actual numbers might be higher as many couples prefer staying separated without officially filing for divorce. The U.N suggests that divorce rates have almost doubled in India within the past two decades.

Types of Divorce

In India, there are two primary types of divorce - 'Divorce by Consent' and 'Divorce by Contest'.

• Divorce by Consent: In such cases, both partners agree to the divorce and mutually decide the terms and conditions, like child custody maintenance, and property division before filing for divorce in court.
• Divorce by Contest: This type of divorce involves disputes between partners over the need for divorce or disagreements over the terms and conditions.

Financial Matters

Division of Property

The division of property in a divorce can be quite tricky. Any gifts given to the wife during her marriage, including cash or property, are hers to keep in case of a divorce. If a couple owns a house together, the division of property depends on the distribution mentioned in the agreement. In case of joint ownership, the property is split 50-50, regardless of individual contributions towards the down payment or mortgage. On the other hand, if the husband bought a house in the wife's name before 2016, it's considered a benami transaction. However, if the husband can prove that the property was bought with known income sources, the property is considered the husband's possession.

Child Support

According to law, a man is required to provide maintenance to his child and wife after divorce. However, an educated wife with a good earning may not always be entitled to child support. Furthermore, a major child (above 18 years) can seek maintenance from the father if they are unable to earn due to sickness or ongoing education.

Alimony Payments

After divorce, the higher earning spouse might have to continue making payments to the lower earning spouse – an amount decided by the court known as alimony. About 25 percent of the higher earning spouse's monthly income or one-fifth to one-third of their net worth is often used for calculating alimony.

Bonus Tips: Preparing for Marriage

Lastly, below are a few essential steps to consider even before getting married:

1. Creating a Family Trust: Although prenuptial agreements are not legal in India, creating a family trust could serve a similar purpose.
2. Making a Will: A will helps ensure that one's assets are divided among the desired beneficiaries in unsuccessful marriages.
3. Understanding Joint Loans: A joint loan might affect your credit score after a divorce.
4. Term Insurance: If you already have term insurance with the MWPA (Married Women’s Protection Act) ticked, be aware that the insurance proceeds will go to the divorced spouse after death.
5. Change Nominees: Make sure to change the nominees in all your major investments, including life insurance policies and mutual funds, post-divorce.

Undoubtedly, it's crucial to understand the financial implications of a divorce to protect oneself. Although it is hoped that one never has to apply this knowledge, being informed can certainly safeguard against potential financial distress in the face of unfortunate circumstances.