How spouses getting into a divorce should iron out differences
Divorce is not an easy decision - emotionally and financially. But as Amazon CEO Jeff Bezos and ex-wife MacKenzie proved recently, separations can be amicable, even with big money involved.
When one of the world's richest couples recently announced their impending divorce after a marriage of nearly two decades, people sat up and took notice. In addition to the divorce coming with a $70 billion price tag for the Amazon chief, many analysts were also worried that Jeff Bezos would exit the divorce with less voting power, or that he or ex-wife MacKenzie would liquidate large portions of the company's shares they jointly held.
The now estranged couple has reached an amicable settlement in which MacKenzie will receive 25 percent of Jeff's stake in Amazon (worth $35 billion), hand over voting control of her shares to Jeff and give up her stakes in the Blue Origin rocket company. But the widely publicised proceedings have, once again, brought to the fore the burning question of the financial implications of a marriage going bust. This is especially pertinent to marriages where both partners are financially independent and contribute jointly to the family exchequer — the dissolution of a marriage means that the couple often has to go through the painful (and sometimes, acrimonious) process of determining who walks away with how much.
Divorce lawyer and author Vandana Shah explains, "While it is difficult to ascribe a rupee value to a marriage, that's essentially what it boils down to when you are going through a divorce. Considering that prenuptial agreements are illegal in India owing to a Supreme Court ruling, it becomes especially important for both partners to take a few vital steps, during their marriage and while filing for divorce, to ensure that they are fairly and adequately compensated," she says. Here's a primer on how to go about doing this.
Maintain separate accounts
"There is very little financial planning that goes into most marriages in India. In my case, all my income went into the joint account I shared with my then husband. He and I had also invested in a new business for which we had raised a loan — while my income went towards repaying the loan instalments, my husband's salary was used for household expenses. When our marriage broke down [after five years], there was no record of how much money I had spent. As a result, I did not receive or claim any compensation," says 29-year-old freelance content strategist, Charmi Trevadia.
Charmi Trevadia and Vandana Shah
This, Shah explains, is among the most common errors that couples make. "When you put all your income into one joint account, it becomes difficult to keep track of where and how that money is being spent. Instead, I urge all couples to maintain their individual accounts into which their salaries are credited. Dedicate a predetermined portion of your salary (20 to 30 percent) towards household expenses and use your joint account for this purpose," she advises. While most couples anticipate their expenses rising post marriage, they neglect the fact that their incomes too will rise, she adds. It is especially necessary, therefore, to be conscious of exactly how much you are spending on your daily living. "In the case of financially independent partners, I've found that women also tend to automatically spend more than men on the household. Many of the domestic purchases are made by women, using their own incomes. Assigning a figure to these spends, therefore, is important," she adds.
Plan your investments
Investing in a marital home is one of the first priorities for many couples. However, Shah warns against rushing into property investments during the early years. "Considering the high number of men and women walking out of their marriages in their 20s and 30s, I urge couples to wait for a few years before investing in property. Be aware that any property you purchase will mandate a commitment for up to 25 years, in terms of EMI payments. If the marriage doesn't work out, ownership of the property and the onus of paying the EMIs can become a bane. Instead, choose to invest in mutual funds or insurance policies, and name your partner as your nominee. You can choose to change your nominee at any point in time," she says.
Be willing to let go
When couples jointly invest in a business or property, it can be difficult for them to maintain a cordial attitude towards the investment once they have filed for divorce, Shah says. This is especially true in the case of acrimonious divorces, where one partner may refuse to come to terms with what the other is willing to offer.
"While in the past, the wife [even if she did not contribute financially towards household expenses] was entitled to receive a share of the property, recent high court rulings have concluded that each partner is liable to receive only how much they have invested. In the case of jointly-owned properties, where one partner is the primary holder and the other is a co-applicant or guarantor, the couple has two choices — they can either sell the property and split the money, or one partner can opt to buy out the other by compensating him/her. The same holds true in the case of businesses, where the company stands to lose its valuation if the couple does not see eye-to-eye. In this case, the majority shareholder must be willing to buyout the minority shareholder at the prevailing market rate," she explains.
One cardinal mistake that divorcing couples should avoid making is dragging their case through the court for too long, she adds. "If you are holding out on a settlement in the hope of receiving a larger amount at a later date, after a lengthy court battle, ask yourself if it is really worth the effort. In addition to loss of pay arising from the leave you will be compelled to take from your workplace to attend court proceedings, you could actually stand to gain much more if you invest what you are being offered. Cast your emotions aside when making this decision and choose wisely."
Doing it right
Author Seema Punwani describes how she went about safeguarding her financial interests post her divorce after ending her 10-year-long marriage. “While it is important to protect your interests, you should also be fair — a marriage is not a business partnership and it is important to check your emotions so that you do not make any rash decisions. One of the first steps I took was to find a lawyer other than the one my partner was consulting. Even before the divorce was finalised, I began to maintain separate accounts for my salary and household expenses. I also ensured that I had access to any common accounts I shared with my partner. I continued to live in my marital home and would urge women to do the same, unless it becomes absolutely essential [to leave]. I’ve also learnt the importance of monitoring all expenses across categories and to have those conversations about money, even if they make you nervous. In such cases, I recommend spending some time studying finances and seeking the advice of professionals."
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