A Financial Guide For Women Dealing With Divorce

As the Indian Supreme Court rules against the ‘triple talaq’ or instant divorce law, calling it unconstitutional, one probably wonders, what happens next? How does a woman dealing with divorce manage it all? Especially the finances. Keep reading to find out.

One quote on marriage goes something like this: Marriage lets you annoy one special person for the rest of your life. But sometimes, couples annoy each other to the point that (sadly) the relationship ends with them parting ways.

Divorce is rarely a simple matter. Add children to the situation and the situation only gets even more complicated. While trying to pick up the pieces and get on with your life, you might not be paying a lot of attention to the state of your finances which might be taking a hit. If you’re a woman, going through a divorce, here’s some advice to help you get your finances back on track.

One of the major reasons women suffer when confronted with divorce is because of a lack of awareness when it comes to certain financial information. (This goes for both working women as well as homemakers).

A lot of women are often in the dark when it comes to knowing details about things like their husband’s salary, bank accounts (single and joint), investments, properties, loans, etc. Many don’t realise that all of these details are crucial issues when the court decides on marital property.

Did you think that you have a share in your husband’s assets? Wait! That’s not yet the case. While you might think it’s only fair that you get an equal share of your husband’s assets, the laws are yet to concur with you.

What does the law say? The Marriage Laws (Amendment) Bill 2010, (which amends the Hindu Marriage Act 1955 and the Special Marriage Act 1954) was supposed to give women a share of all matrimonial property. But this bill is yet to get Parliamentary approval. Unless this Bill becomes a law, you have to fight it out in court. So, one of the first things you need to do is to get yourself up to speed on the latest rules.

Religions Rule

There is no single divorce law in our country. We know this makes things very tough. India is home to multiple religions and hence, has multiple divorce laws. In our country, marriage is governed by personal laws and hence, divorce is also governed by the same laws. This means that the religion that you practice (more importantly, the religion that sanctified your marriage), will decide the laws that will govern your divorce.

Some religions favour women while others do not. If you are a Hindu, Sikh or Buddhist spouse who earns less than your better (or should we say bitter) half, you will be entitled to maintenance. This maintenance will be at par with his/her marital lifestyle at the time of your separation. This is under the Domestic Violence Act or divorce under the Hindu Marriage Act. But note that this is not absolute. Apart from incomes of the spouses, the court will also consider the marital conduct of the parties while determining maintenance. So, suppose a man earns less than the wife and the divorce has been caused by his cruelty or adultery. In this case, the woman has the right to oppose his plea for maintenance.

In the case of Muslims, women are entitled to their mehr (a mandatory sum paid by the groom’s father to the bride at the time of marriage) when there is a case of divorce. They can also apply under the Domestic Violence Act for their maintenance and right to residence. In case of Parsis and Christians, the rules are very similar to those of Hindus.  However, under these religions, the husband is not entitled to seek maintenance.

Did you have a ‘registered’ marriage? Then, here is what you need to follow. People married at a registrar’s court under the Civil Marriage Act, have the same rights as Hindus. However, these rules will have to be exercised under the Special Marriage Act. Yes! Yes! Your religion is irrelevant if your marriage is registered under the Special Marriages Act.

If you’re a Goan woman, it looks like the laws’ got you covered all the way. As a Goan wife getting a divorce, you are entitled to a share of your spouse’s assets. In Goa, the laws have been in place from the time of the Portuguese reign. So, technically, if a Goan woman is getting a divorce, she will be entitled to 50% of all matrimonial property. Now what does this mean? Under the Goan laws, matrimonial property covers all kinds of assets including movable and immovable property, monetary and material, inherited and acquired properties by either spouse before or after marriage. However, the last part might not be possible if the couple agreed to keep their property separate in a pre-nuptial agreement.

Claim your darling

Child custody is the most important, tedious and hardest part of any divorce. Here, you must understand that getting the custody of a child after a divorce means getting the legal guardianship of a child who is aged below 18 years. In most cases, both parents will continue to share legal custody. However, only one parent will get physical custody. This means that the child can stay with only one parent with the other visiting them. As you might know, in case of an infant (irrespective of whether it is a boy or girl), physical custody is almost always given to the mother. Here you must note that custody is different from guardianship. Guardianship involves the right to make decisions regarding the child’s future and manage all the finances in the child’s name. The law gives men all the rights here. According to the law, the father will be the child’s natural guardian. The mother having physical custody doesn’t affect this rule. So, if the father agrees to any settlement in the child’s name, the mother can’t claim it. The mother can become the guardian of the child only if the father is found to be ‘absent’ or is ‘unavailable’.

Settle in private

There are many cases where the couple would want to settle matters before they go to court so that there is less drama and the processes remain smooth. Pre-litigation mediation is what you should look at, if you want to do this. This is a process by which you resolve your disputes on mutually acceptable terms before going to court. There are two types of mediation that are popular at present. One is pre-litigation mediation that we mentioned and another is court-annexed mediation.

In case of the latter, the judge orders both the parties to finish their mediation before proceeding. A neutral third party will help with the mediation. In either case of mediation, it will be a win-win situation for both parties as everything can be decided amicably. Through this process, one can determine the terms of settlement, which will include permanent alimony, monthly pay-outs, compensation, visitation rights, distribution of assets and many such issues. As you know, court proceedings take a long time, sometimes years and your finances might be affected during the period. Therefore, alternate dispute resolution techniques and processes will help speed up a divorce. This way, either party is saved the costs and pains that are part of the litigation process.

Faux Pas

Do you know that in India, a working woman reinvests 90% of her income in her family, whereas a man contributes only 30%-40%? Very often, the salary of working women is used to take care of all household expenses while the husband’s salary goes towards savings and investments. Some women (not too many, hopefully) are not interested in managing their own savings and subsequently, investments. There are other cases where details about the family’s savings and investments are not disclosed to the woman.

Additional Reading: Top 8 Savings Account Schemes For Women

People don’t think much about all this until they apply for a divorce. In a marriage, it is always healthy and necessary to be frank about family finances. It is important for the partners to openly speak with one another about savings and expenses. If the woman is not in the loop when it comes to the family finances, the man could possibly walk away with all the savings, including the woman’s contribution.

Let’s take an example – the purchase of your dream home. It is a general practice to buy a first home along with the spouse as co-owner. This is irrespective of whether only one of them or both of them are going to contribute to the repayment of the Home Loan. If both the partners contributed to the EMIs, the registration has to reflect it. Then, both can claim the property after divorce. According to the law, a property belongs to the person in whose name it is registered. The law doesn’t look at who paid the money for it. If the husband has been paying the EMIs and the property is both in the husband and wife’s name, the wife will still get a share in the property.

Similarly, one spouse may pitch in with the other’s Credit Card dues but, if this is not taken into account in the final settlement, the money can be written off. A problem in India is that many wives are not aware of their husband’s salary, let alone the savings, loans and investments. In this context, there is an important point that you need to note. As per law, the onus is on the woman to prove that her husband earns well enough to support her and their children post-divorce, if she wants maintenance after the divorce. That’s the reason why you must be careful with your money.

Ideally, the money that you receive in your name should be invested in your name and the same goes for your partner. This way, you will be able to maintain a clear record of your savings and investments. The best part is that you can also plan your taxes in a better fashion and if divorce ever comes up, there will be total clarity in case of money matters. When investing in the names of your children, you can alternate guardians for each of the investments. One investment can go in your name while another can be in the name of your spouse.

Keep it smooth

Unpleasant might be the perfect word for divorce and getting things settled amicably might seem like a pipe dream. However, a lot of the unpleasant scenes could be avoided if certain rules are followed during marriage. You should make investing a joint process. Investments should ideally be made in joint names. In most cases, the investments are made in the husband’s name with the wife being the nominee. Instead, investments like Insurance, Fixed Deposits and Mutual Funds, in the wife’s name too. This will ensure you retain those investments after divorce, especially if you were financially dependent on your husband.

If you want to go one step further, you can have a pre-nuptial agreement with your husband. How does this help? Agreeing on how you will divide your assets (during a divorce) before marriage will help keep your divorce process smooth. This might be pretty awkward for a couple in love but these agreements will actually tell you what’s on your fiancée’s mind.

Deciding the divide

In India, a woman is not entitled to any property in her husband’s name unless she is a co-owner. According to law, at the time of dissolution of the marriage, the wife does not have any consequential right to property or any other marital assets unless they are registered in joint names. It is common practice for spouses to open joint accounts to pool funds after marriage. This can become a disadvantage during a divorce, especially if you contributed more. Your partner will have equal share in the account. So, it is always advisable to have individual accounts. It will be best for you to deposit money that will be used for shared expenses in a joint account. This way, a court order can restrict the bank from releasing the money until the case is settled.

What happens in case of other assets? If a couple owns shares, bonds, Mutual Funds and other such investments, they will be shared equally if the investments are owned jointly. If not, they will be shared in the proportion in which they are held. This goes for all investments.

Any gifts, including dowry or streedhan (jewellery or cash given to the girl during her marriage) that belong to a woman, will be lawfully hers. What happens to inherited jewellery? All heirlooms or jewellery that were inherited, will go to the rightful owner whose family owned it before them.

The most important part, perhaps (?)- What happens to that couch and teak dining table? All consumer durables, furniture and other household items that were purchased during your marital life are common assets. These will be divided based on court orders.

You must also understand the tax rules that are in place. This will help you decide the kind of alimony that you will get. Typically, a lump sum received as alimony will not be taxed. However, if you decide to receive monthly alimony payments, it will be considered as income and will be taxable in your hands.

If you don’t want the monthly alimony to be taxed, consider asking your spouse to fund expenses such as school fees, rent of your house and other such regular expenses. Such payments will not be taxable in your hands. Note that both of these rules apply only to cash payments.

Asset transfer has a totally different set of rules. Any asset transferred to a spouse before marriage is, of course, tax free. However, if the same is done after divorce, it will become a transfer to a non-relative and might be taxable in the hands of the one who receives it. There are varied views regarding this as the tax rules regarding the asset transfer after divorce, are not clear. However, the law says that any asset received without consideration will be taxable. Since here, there will be a consideration which is divorce, the asset transfer may not be taxable. It is best to consult a chartered accountant in this regard. Any jointly held properties will be split evenly between the spouses.

Get the support you need

India is indeed a very traditional country and the husband is, in general, considered the bread winner of the family (even though this is not necessarily the case). He is supposed to carry the responsibility of providing for his family. This is true even if he divorces his wife. He needs to do this, especially if his wife isn’t working. This means that a woman can claim alimony, maintenance and other monetary support from her husband when she becomes a divorcee.

What is alimony and maintenance? Alimony is a lump sum that you will receive upon divorce while maintenance is in the form of monthly payments. You can ask for either one or both.

How do you ask for monetary support? As mentioned earlier, India is a blend of religions, castes and creeds. So, the divorce laws in the country are governed by the religion under which the marriage was solemnised. If it was a Hindu marriage, you need to file an application for maintenance under the Hindu Marriage Act. As a Muslim, you can claim alimony under the Muslim Women (Protection of Rights on Divorce) Act.

Wait! Is there a section one could use irrespective of caste, creed and religion? Of course, there is! Under Section 125 of the Criminal Procedure Code, anyone can file an application for maintenance.

How does alimony work? 

Things have changed in the decades gone by. Single income families have become passé. Many families today are double-income households where the women work to support the family alongside men. The court, of course, takes all this into account. It decides the alimony and maintenance amount based on which spouse earns the most between the two. So, if you are earning more than your husband and your husband’s career is not going great, you might be asked to pay alimony to your husband. Yes! It’s true.

But there are other things to consider too. Apart from the spouse’s salary, their properties as well as family wealth will be taken into account to decide on the alimony. There have been cases where people have disinherited properties to escape paying alimony. Here are some other points that determine the alimony. One being, how long you have been married. This will determine the amount of alimony. Note that if you had been married for more than 10 years, you have the right to claim life-long alimony. The other point will be how affluent you and your husband are. If your husband is wealthy, he might be asked to pay higher alimony. This is because your standard of living would have been high during marriage. But at the same time, if you have a good career and are affluent yourself, the court might decide that you don’t need a very high alimony. The last, important point that is considered by the courts is your age and your husband’s age. If both of you are young and working, the court might feel that you can manage to do well financially on your own and the alimony amount might be set as a low figure. Note that these things are not entirely left to the court. You can play a big part in what you want to get after the divorce.

Going through the drill

You might have bargained with the vegetable vendor all your life. Are you willing to do it with the person who you lived with? Bargaining is very important if you want a decent alimony and maintenance after divorce, especially if you are not working. Your negotiation skills will come into play here. The best way to go about it is to sort it out before things go sour with your ex.

Lawyers usually advise you to avoid getting help from relatives for the process. This is because, during negotiations, relatives try to drive a hard bargain. This might result in a lose-lose situation for both of you. Always keep in mind that the ‘streedhan’ (that you got at your marriage or after) is rightfully yours. What does streedhan actually include? It, of course, includes the ornaments given at the time of marriage but also includes all the gifts of money, property and other immoveable assets received by you before, during and after marriage from your family, your husband’s family, friends and anybody else. These are your personal assets. But note that the onus lies on you to prove that they were actually given to you. This means, like in the movies, you need to have witnesses for your gifts. If you want to keep those gifts, get those witnesses. There are several cases where the jewellery is hidden or the husband might claim that the wife has it with her. So, always keep a list of  the streedhan and get it duly signed by relatives. If not, ensure that your parents always have the receipts for all the ornaments that they got for you for your marriage.

The big question

As we mentioned, you can get an alimony which is a lump sum or a maintenance which will be monthly payments or both. You need to decide which ones you want. A financial expert will tell you that a one-time lump-sum settlement is much more practical and easier to handle. You will receive the money up front as soon as the divorce is settled. If you choose to receive maintenance, understand that it will be a long-drawn dependence on your husband. There are several cases where husbands don’t pay on time or don’t pay at all despite the court instructing them to.

From a tax point of view, too, alimony is better. Taxation of income or receipts, primarily depends upon the nature of receipt. The law says that if the receipt is in the nature of a capital receipt, it should not be subject to tax. Since alimony is a capital receipt, it is not subject to taxation. Maintenance being monthly payments comes under revenue receipt and will be added to your income, becoming taxable. Many high court rulings have reinforced the same.

Once you receive the alimony, you must ensure that you invest it properly to reap the right returns in the long run. This will help secure your future as well as the future of your children.

Putting the money to good use

It is typical human nature to spend a lump sum received to buy things that one wants. This isn’t the most advisable thing to do. The first thing you must keep in mind is not to go on a spending spree as soon as you receive that alimony. As a responsible adult, you must look at investing it. If you are unsure, get the help of a financial planner. List down your goals and allocate your funds for the same. Until you decide how and where to invest, put your money in a Liquid Mutual Fund or a Fixed Deposit so that it continues earning money.

Secure your future

Prioritise your goals before you start investing. Your children’s’ education and your retirement should be given top priority. But if you have dependents such as your children and parents, you need to first ensure that you are insured against any contingencies that might arise. Any financial adviser will tell you that the basic financial needs for an individual will be protection, wealth creation and retirement planning. You can fulfil these needs by getting Life Insurance, a health cover, investing in Mutual Funds, commodities like gold, annuity and pension products, among others.

You must do some research before you decide to put your money into them. Ensure that these investments suit your risk profile and needs. Some financial products are specially created keeping in mind the special needs of women and their circumstances. This includes loans, insurance and investments. Note that such products will be cheaper. Insurance firms feel that women have lower mortality risk when compared to men and hence insurance premiums are usually lower for them.

Apart from looking at Life Insurance and Health Insurance, you must also look at getting covered for critical illnesses. For instance, incidences of illnesses such as breast cancer are on the rise and getting Cancer Insurance Plans for them makes good sense. You must consider income replacement financial products which will protect your income if you are out of a job or are unable to work.

You can invest in your name or your child’s name for their education and marriage. You could also consider buying a child plan for your kid’s education. This will help combine life cover with investments. The most important point to note here is that the product needs to have an in-built waiver of premium. This will ensure that the child is covered even when the parent is no more.

Some products also have a family income benefit. This feature provides for an annual income in the absence of the parent.

If you are looking to transfer assets to your child’s name, keep these points in mind. When you transfer your assets to a child who is a major, it doesn’t attract any tax. In case of a minor child, there might be taxes involved. The law states that any income arising from an asset transferred without adequate consideration will be clubbed and taxed in the hands of the donor. Don’t fret! There’s another way you can transfer assets to your child. Gifts in the form of Mutual Funds, Provident Fund account, insurance policies and stocks, do not attract taxes even though they might get clubbed with your income.

Saving for retirement

You need to invest a good part of the lump sum received for your retirement before looking at any other goals. If you want to beat the inflation in the long run, consider this asset allocation for your retirement savings. If you are still young, you could invest 40% (of the money) in equities, 50% in Fixed Deposits and debt funds and the remaining 10% in liquid assets. You should also consider a good pension plan. If you are one who doesn’t want to actively manage the pension fund, you should look at investing in a combination of Public Provident Fund, Mutual Funds and insurance policies. If you end up getting a fortune through the divorce, you can consider investing in real estate. The twin benefits of rental income and capital appreciation make this investment profitable in the long run. The rental income will take care of your present needs while the capital appreciation of the property can help beat inflation. If you already have a house, consider purchasing a second home or commercial property.

Creating an income stream

Once you are done with setting up insurance and saving for retirement, you need to create regular income to support your family. You could consider investing in a mix of post office monthly income scheme and monthly income plan (MIP) offered by Mutual Funds if you are looking at a monthly income from your lump sum. You could, of course, consider the monthly pay-out options provided by bank Fixed Deposits. But remember that here, the taxation will be higher, especially for those in the highest tax slabs.

Get expert help

Rebuilding your finances requires a lot of attention to detail and financial knowledge. If you don’t have either, you should take the help of a financial expert. Investing is a knowledge-driven process and mistakes could prove to be quite expensive for you. You must consult an advisor with prior experience. Ideally, the expert should have established his credibility. You need to get testimonials of people to ensure that this is indeed the case. Also, note that investments should be tracked at least once in six months to ensure that they are on track. It takes a lot of effort, time and patience to build finances and an expert should be able to help.

Choose someone that doesn’t work on a commission basis. A longer relationship with your financial planner is much better than a need-based one where you pay by the transaction. Ensure that the planner listens to your financial situation before providing you with any kind of investment advice.

Divorce is a very exacting period in one’s life and is, of course, life-changing. As a quote goes: Life is 10% what happens to us and 90% how we react to it. So, your future lies in your actions. This goes for both your personal and financial life. Make the right decisions and you will surely benefit in the long run.