Financial Planning for Divorce Litigation in India

Financial Planning for Divorce Litigation

It is said that Courts and Hospitals wipe out the whole life savings of individuals and turn a king into a pauper. We all have read in newspapers about the estimated Rs.400 crore divorce of Hrithik Roshan and now another estimated $36 Billion Divorce settlement of Jeff Bezos. However, they probably had this much money to spare; most middle-class people facing divorce proceedings are not that lucky. So, how should a man manage his finances during and post-divorce litigation? However, it is impossible to meticulously plan everything with legally tenable financial planning with the thrust on black money and everything going on right now. Here are a few things a person can do while dealing with or, even better, having the prospect of divorce.

1. As a matter of fact, one saves for a better future and to deal with contingent and unforeseen events. The way society moves, there are more chances to get hit by divorce litigation. In such unexpected circumstances, small savings from the past can help you a long way. One of the ways to save small is through a systematic investment plan known as SIP. In my experience, people ignore the financial aspect of being hit by litigation and, hence, suffer a lot. Therefore, one must start a SIP of a small amount every month soon after getting married. This is to ensure that one has enough corpus to deal with any difficulty and fund legal expenses, maintenance, alimony, etc., in case it happens. If one is fortunate enough not to be hit by litigation, this money saved can be spent on a luxurious second honeymoon. One should look at this SIP as litigation insurance.

2. The financial structuring is essential in the litigation and pre-litigation process. If handled well, a person can save a lot and avoid losing vast amounts of money to the disgruntled wife and children. The same money can be used for a better future for self, parents and loved ones. The legally tenable tools available can help one plan for parents’ security, debt management/consideration, retirement, property partition, and child education/marriage. One should start the financial structuring on the very first signs of disturbance in married life. However, there is always time for financial structuring, even during litigation.

3. Separate entity formation is also crucial at the pre-litigation stage to ensure that rightful owners are the custodians of hard-earned money, funds, and property acquired during an individual’s lifetime. It is also an effective and legal tax planning tool as per the Income Tax Act applicable in the country. Knowing that some entities can carry on business, invest in mutual funds, and become partners in a partnership firm is also essential. Selected get the same tax advantages as an individual, such as slab tax rates, section 80C, the Health insurance premium for members, and claim a deduction for interest on self-occupied house property, amongst others.

4. A stitch in time saves nine is commonly heard saying and rightly applicable in cases where the timing of a decision decides the fate of an individual. The timely decision to make a Will and gift would go a long way to avoid unnecessary hiccups and complexities in the litigation process. Will is an instrument through which one can ensure that, after a person is not alive, the current and future assets, including movable and immovable, belong to them and get to the beneficiary of their choice rather than anyone unwanted. Readers must know that will is a revocable instrument during the testator’s lifetime. Gift is another instrument through which any property can be voluntarily gifted to a person of their choice. The donee should accept the property gifted to them during his lifetime. As soon as a gift is completed, the donor loses the ownership of the asset, and it cannot be revoked/reversed unless covered by exceptions as stipulated by law.

Any effective plan that works well for an individual needs to be customized based on his circumstances, goals, risk appetite, existing portfolio and opportunities & options suitably available. Disclaimer: The above generic article is for awareness purposes only, and the author does not recommend any illegal financial planning means.

If you need advice and opinions personalized to your situation, please email me at info@shoneekapoor.com.

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