Till divorce do us part: How to manage your assets when you split

It isn't just the assets you should be concerned about when you part ways. Even liabilities such as car or home loans, and credit card outstandings must be dealt with

Abhishek and Joyeeta were a typical young urban couple – double income, no kids, or a DINK couple. But when they decided to part ways after five years, there were uncomfortable questions. How to split assets? And there were quite a few – an apartment, a joint account and few joint investments. More and more couples are facing this question. According to reports, the divorce rate in India has risen from 5 per cent in the 1980s to 14 per cent in recent years.  

Division of property: Since in Abhishek and Joyeeta’s case the apartment is co-owned and both were servicing the loan 50:50, the latter will have 50 per cent right over the property. “In such cases, it is important to decide who gets what portion of the property and how the loan responsibility is distributed,” says Supratim Roy, an advocate at Calcutta High Court.

Ideally, the property should be sold, the outstanding amount should be repaid to the lender, and both can divide the rest of the money. The other solution: Abhishek can transfer the entire loan in his name, and give Joyeeta 50 per cent of the market value of the property. Yes, it might mean that the loan may have to be refinanced, and if the husband’s borrowing ability is reduced, the tenure may have to be extended.
 

Deepavali and Pramit’s case is different. They parted ways after three years, and the house they had bought was registered in Deepavali’s name to pay lower property registration fee applicable to women. “The property has been paid for and purchased by Pramit, but the title is held by Deepavali. In this case, Deepavali is the rightful owner of the entire property,” says Roy. “However, if Pramit can prove in court that he has funded the purchase even though the title is held by the spouse, he can claim the property.”  This can be done by showing banking statements to the court, which show that he has paid the principal or instalments. Had the property title been in Pramit’s name, Deepavali would still get 50 per cent of the property. The wife is eligible even to get 50 per cent of the inherited property. However, if the property is not in husband’s name, she can’t get a portion. Capital gains from a house sold after being held for three years will attract long-term capital gains tax which is 10 per cent without indexation and 20 per cent with indexation.  

Splitting assets: Many couples treat savings and investments as common assets. So, there are joint accounts and joint investments. These investments have to be divided equally among the two. There are some things that can be done to make this transition from ‘our’ to ‘mine’ relatively smoother when it comes to splitting the money. You can reach your terms through a marital settlement agreement – an agreement that divides the assets, and debts of a couple, in the event of an uncontested divorce. Of course, it could be more complex in case of a contested divorce. “Apart from cash savings, dividing investments in shares, mutual funds, fixed deposits and SIPs may require some extra effort. The simplest way to divide them is to liquidate them and divide the proceeds between the spouses. The division of the proceeds can be done based on individual contribution as well. However, premature liquidation may mean you may lose out on some returns,” said Manik Sarkar, financial planner.

Till debt do us part: Debts are just as important since they also factor into a couple's net worth. There are cases where people cannot or do not pay the debts they were assigned in the divorce by the court. In such an instance, the creditors may come after the spouse responsible for the debt, even though originally both parties were responsible for the loan.

So, what can you do if your spouse doesn't clear his or her credit card debt and the credit card company is hounding you? You can petition the court to enforce the divorce agreement if you can afford to, pay the debt and keep proof of your payment. Then, notify the family court and ask for assistance in getting reimbursed from your former spouse. “Try to pay down as much as debt as possible before your lawyer starts drafting the agreement of the divorce. This will make splitting finances, debts, properties easier down the line," says Ashik Hussain, an advocate at Calcutta High Court. The original credit card agreement or loan contract supersedes a divorce decree, at least in the eyes of the bank. To protect yourself from having more debt run up, you can cancel all cards you are aware of, and you can put it them to your name. "To prevent your spouse from running up debt that you might ultimately have to pay, you can file documentation with the court about joint credit cards and debts owned on them," says Hussain.

Sorting out a joint mortgage: Major loans like home mortgages and car loans are more difficult and often requires refinancing the loan into just one person's name – the one keeping the underlying asset. Many divorcing couples have a joint mortgage. They must try to sort out the mortgage so that only one partner has his or her name it. The advantage of doing this is:

•    The person whose name has been removed from the mortgage should be able to borrow more to buy himself/herself a house

•    The person whose name remains in the mortgage won't have to rely on the ex-spouse any longer

•    Both partners can break the link which ties their credit files together, thus how either partner manages his or her debt will not affect the other person.

If you cannot afford to transfer the mortgage to your name, you can opt for a 'guarantor mortgage', in which a close relative agrees to guarantee the mortgage payment if you cannot.

Dividing the silver: What about the gifts a woman gets for her wedding? Any gift given to her, irrespective of whether it is from her parents, in-laws, friends or even acquaintances, is a part of her personal wealth, or Streedhan. “Streedhan exclusively is a part of Hindu Marriage Law. The husband can even gift inherited property as a part of Streedhan given to the wife during the marriage. In such a case, such property cannot be contested in the court of law since there has been a change of title, and it exclusively belongs to the wife,” said Pankaj Maalde, financial planner.

Streedhan has often been misinterpreted for dowry, though the law of the land has two different definitions for each of these terms. “Two separate law suites can be referred to in this case. One, Bhai Sher Jag Singh vs Virinder Kaur where Punjab and Haryana High Court had ruled that the groom’s side had to return all the items offered by the bride’s side during the marriage. Two, Ratibha Rani vs Suraj Singh case. The Supreme Court had observed that the complainant was harassed by her in-laws and was denied her right to Streedhan by the husband’s family and the top court ruled in her favour," said Roy.

In Rashmi Kumar vs Mahesh Kumar Bhada case, the SC held that when the wife entrusts her Streedhan property with the dominion of that property to her husband, and he dishonestly misappropriates it, he commits criminal breach of trust which falls under Section 405 of the IPC.

Streedhan includes all valuables like a car, paintings, artefacts, furniture, electrical appliances, gifted before and during the marriage. “In case of a dispute, a list of all items given as gifts signed by two witnesses can be produced to make a claim,” says Uttam Kumar Sen of Step Ahead Investment Advisors. If one partner wants to keep a jointly-held gift, he or she can buy the spouse out.

Jewellery inherited by the wife or husband belongs to that particular spouse and cannot be claimed by the other. But ornaments passed on to the wife by the mother-in-law belongs to her. “However, any movable object bought by the husband in the name of wife, but not passed on as a gift, does not belong to her. Similarly, she also cannot claim the earnings spent to run the household,” says Sen.

Likewise, any gift made to the husband during or after the marriage by the woman’s parents cannot be claimed back. If a woman sells her portion of the Streedhan after divorce, the profit earned will invite capital tax gains.

The same rule applies to gifts made to the husband. You don't ever get into a marriage thinking about the possibility of a divorce. But if you find, a few years down the line, that things aren't working out, you might consider preparing for that eventuality in advance. It is always advisable for the couple to engage a financial advisor to get a clear picture of their assets and liabilities.

Alimony, spousal support or maintenance are different words for the same thing where one spouse pays for the other to support him or her after divorce. It is designed to help the lower-earning spouse or spouse who is out of the workforce to maintain a similar living standard before the divorce.

Under the Hindu Marriage Act, laws under alimony are governed by personal as well as the central act. Expansion used at the beginning of Section 25, Hindu Marriage Act 1955 explains the provision of alimony or maintenance. The court can order either the husband or the wife to pay alimony for his or her maintenance. The court can either pass its jurisdiction on a gross sum or a monthly sum for a term not exceeding the life of the applicant.

Quantum of alimony:

•    Position and status of the parties,

•    Reasonable wants of the person demanding the alimony

•    Value of claimant’s property, income derived from it or from claimant’s own earning from any other source

•    If the couple has children and they remain under the custody of claimant of alimony, the expenses of the children (school fees, tuition fees, miscellaneous expenses) have to be factored in.

“Another law regarding alimony has been laid down in Section 125 of Code of Criminal Procedure. It talks of alimony rights given to wife given by the husband. Section 125 grants the right of Interim Maintenance. Interim Maintenance can be awarded before final disposal of the case,” said Roy.