Getting a divorce usually involves a lot of emotional trauma, pondering and financial irregularities. Here are a few ways to maintain financial stability during this turbulent time.
Getting a divorce is a process which involves a lot of emotional trauma, deep thinking and, financial irregularities. As much as we would love to have couples stay together, a divorce in many cases is inevitable.
When a couple parts ways, the settlement process can be a little harrowing to say the least. The home which was previously shared by the couple is left isolated and becomes a mere house which might even be attached to a Home Loan.
Buying a house together is a huge investment and when you decide to part from your spouse it may become a contested piece of property. Between the emotional turmoil and social pressure, the division of assets and joint accounts takes centre stage. In this article, we will cover the methods of sustaining financial stability while you call it quits with your partner.
Additional Reading: How To Manage Your Finances After A Divorce
As you may have already assumed, the splitting of assets after a divorce is one of the major causes of disputes between estranged couples. Who gets what? Do women have special rights? Let’s begin with figuring that out.
Do Women Get a Share of the Husband’s Property?
The present law states that a woman who has filed for divorce from her husband shall not be permitted any share in her husband’s privately owned property. The person who has legal ownership of the asset will have the complete right over its disposal. The provision to claim a share in the property will be entertained if the wife can provide evidence of her contribution in the acquisition of the asset.
There are occasions where men buy a house/property using their own personal money but prefer to list it as under the possession of their wives, in order to exploit the lower property registration charge levied on women as opposed to men. In such a scenario, the wife may legally maintain a charge of the property.
Additional Reading: A Financial Guide For Women Dealing With Divorce
New Development
A new development suggests that the lawmakers of the country are planning on passing a law which will allow women to claim a right over residential property owned by their husbands. Additionally, the clause of whether the property was bought before or after the legalisation of the marriage will not hold and the woman will be entitled to the asset, irrespective.
In the present scenario, the recommended amendment to the law is this – the asset distribution will be under the sole jurisdiction of the court, that is, the court will decide the share which may be granted to the wife. These speculations and amendments have not yet taken root formally.
As of now, it is as simple as this- even though one person may have invested his/her own earnings into purchasing an asset, the property will remain with the person who holds the title to it legally. Such details are important and the parties seeking annulment should be aware of them.
It is essential to remember that this may not apply if the original owner, the person who bought the said property, can provide evidence that they were solely responsible for the acquisition of the property. Meaning that if they can prove in a court of law that it was their sole endeavour which resulted in the addition of the asset then they can claim full ownership.
Inheritance & Ownership
When a property is directly inherited by a person, it remains out of the settlement, with full ownership to the individual to whom it was left. It is highly important to note that the distribution of the property takes effect only if there are no prior agreements established between the couple.
In the absence of a plan created by mutual accordance, the legal proceedings to the splitting of the assets are conducted. It is a prevalent norm today to distribute the assets based on who bought it, with a perfectly clear understanding and agreement between the parties.
Property Bought in Equity
Often, couples buy property and assets through a joint contribution. They make the down payment and instalments in equal or non-equal proportions. The best way to divide the joint property is to split it based on the contribution made by each spouse. In order to arrive at an equitable distribution, it is wise to go over the bank statements (of both the parties) and determine the level of contribution made by each.
Once the analysis is complete, make the estimate and divide the asset in the proportion that you arrive at. In the case of a mutual agreement, the property can be given to one or the other, as agreed, and the process can be completed by legally transferring the rights over to the designated owner.
You can also sell the property, if it is deemed fit by both the parties involved, and divide the earnings generated from the sale. While selling off property, it is quite critical to consider other legal factors as well. For example, when a house is sold in the market after three years of possession it is subjected to long-term capital gains tax.
However, any profit from a sale conducted before that period will be liable to taxation. Moreover, if the property is introduced into the market before five years of possession then the tax reduction claimed will have to be reversed.
Additional Reading: How To Calculate Long Term Capital Gains (LTCG)
Your Options
Pay Debts by Selling the House
You can sell the house and divide the money on a ratio previously decided upon. If you have a debt or a loan which you have taken on the house/property then you can settle it by paying it off from the money earned through the sale.
Complete Ownership of the Property
If by a mutual agreement, it is decided that one spouse is to obtain complete possession of the house then the person must transfer the title to him/her. This can be done by first finding out the current market value of the house.
The second step must be to calculate each one’s share-based on individual contributions. Then the person retaining full ownership must pay the other the amount due to them. This way the settlement can be achieved without any hassle.
Co-ownership of the House
In a scenario where the couple decides to hold the property together, it would be wise to draft an agreement with full disclosure of all the claims and decisions reached by both the parties.
Alimony & Streedhan
If you’re a woman going through a divorce then you need to know the following on alimony & streedhan.
- If the wife is employed – Irrespective of whether a woman is employed, the court will assess the difference of income or net worth between both the husband and wife and will pay alimony to the wife to help keep up her standard of living.
- If the wife is unemployed – In this case, the court will consider the woman’s age, her educational qualifications, ability to find a job and then decide on the amount of alimony.
- If the couple has a child – Ideally, alimony is not the same as child support. The cost of maintenance or child support needs to be paid by the father. Additionally, if the mother is also working, then she too will have to chip in for child support.
- If the husband is disabled – In this case, the husband will receive alimony from the wife if he is physically incapable of earning and if the wife is earning.
Additional Reading: Single Mother? How To Invest For Yourself And Your Child
Alimony details
The Supreme Court has decided on a percentage number that a husband should provide in alimony. He will need to pay 25% of his gross salary. However, this number can be lower or higher and is on a case to case basis.
In some cases, couples may choose to have a lump sum settlement and this can be anything from 1/5th to 1/3rd of the husband’s net worth.
The monthly alimony pay-out is treated as a revenue and is taxed as per the receiver’s tax bracket. The payer will not be eligible for any deductions either. However, a lump sum settlement is treated as a capital receipt and is tax free.
What Is Streedhan?
Streedhan is anything that belongs to the woman or has been gifted to her at marriage, before marriage and during the course of the marriage. It includes all kinds of jewellery in gold, silver, precious stones, semi-precious stones, any property that is under her name or other valuable assets like cars, artifacts, paintings, appliances, furniture etc.
Streedhan also includes gifts from anyone like the in-laws, parents, friends and other relatives. This is also inclusive of the woman’s earnings before or after marriage from an employment or business. And it can also be any savings or investments made from this earning.
Seeking Financial Help During the Process of Going Through a Divorce
It is surprising to note that money, more often than not, plays a critical role in divorce cases. It is actually ranked number two on the reasons that lead to a divorce and this factor might continue to be a problematic area once the case begins.
The force of professionals employed in the proceedings could charge a pretty hefty fee for their services. This could become overwhelming if the case is stretched over a period of time. In fact, the hourly charge of the accountants and lawyers could drain your savings quite quickly, even before you obtain any financial security from the settlement.
A case that drags on, without reaching a settlement, can cost a lot. Taking into account the various court meetings, financial documents, drawing up of statements, and other legal proceedings, the hourly legal fee could add up to a serious sum.
It is no secret that a divorce creates a huge burden on a person’s personal life and adversely affects their cash flow as well. Usually, during a divorce, both the parties are adamant when it comes to the settlement. No one wants to settle for anything less than what they think they deserve. That is why people continue to battle it out for long periods of time.
If the fight is long and drawn out, it could create financial problems for the people involved. For example, if a loan has been taken, and due to the expenses associated with the divorce, cannot be repaid, it will have a negative impact on the borrower’s Credit Score.
This, in turn, could affect the chances of being granted future loans and monetary assistance. This becomes a vicious cycle and may eventually leave a person unable to fund the divorce case.
This is where the concept of a divorce loan comes in. There are many financial firms that offer loans to enable people to fight the case without going bankrupt in the process.
Divorce Finance Firms
Ever heard of a divorce finance firm? Something like this could be a lifeboat, aimed at saving you from drowning, during a divorce. Some of the largest and most reputed firms do not require a Credit Score or incomes in order to dispatch loans for the divorcees. They provide custom fit plans for different customers keeping their particular situations in mind. The reason behind the leniency offered by these firms is the fact that their main focus is on the entire category of the asset in question and the settlement obtained as a result of the proceedings. It is important to note that the accepted clientele of such firms is limited to a particular income group.
Please note: Though divorce finance firms have gained much popularity in the west, they are not yet the norm in India. In India, such loans may be secured from non-banking lenders. If you are unable to get financial help from anyone to fund your divorce proceedings, you can opt for a Personal Loan. This is given without collateral and you don’t have to worry about revealing your reasons for taking the loan. It’s a ‘no-questions-asked’ loan. That’s something to consider.
Going through a divorce can be exhausting and taxing. However, strategic planning and execution can make the process a little easier on you and your bank account. Need some financial help right away?