India is fast catching up in the list of countries with a highest divorce rate. So, what could the best way for couples to divide their financial responsibilities and assets in case divorce happens. In an interview to CNBC-TV18, personal finance expert, Lovaii Navlakhi, International Money Matters will answer queries related to such issues.
India is fast catching up in the list of countries with a highest divorce rate. So, what could the best way for couples to divide their financial responsibilities and assets in case divorce happens.
In an interview to CNBC-TV18, personal finance expert, Lovaii Navlakhi, International Money Matters will answer queries related to such issues.
Below is the edited transcript of his interview on CNBC-TV18
Q: What is your view on this subject and how one should under these circumstances divide their finances?
A: In the US there are special financial planners who focus only on divorces. Essentially, we are talking about marriage where the partners need to communicate with each other.They need to understand their expenses and their common goals. If they have children then both the earning members, both the spouses are contributing to that goal, and also towards living expenses, buying a home, retirement etc.
In case you reach a stage where you are heading for a divorce then at that time, obviously you want to unbundle all of this since both the members were contributing and even if one member is contributing, the goals are common. So, at that stage it is time to relook at the expenses to ensure that essentially both the members continue to maintain their lifestyles even after divorce. So it is not just looking at what they need to maintain in the immediate future but even to a little longer extent.
If one of the member is earning, and the other is not then some projections have to be made on what is going to be the future earning and how inflation will impact the non-earning member, needs to be taken into account.
At a time like this obviously there is a fair amount of emotions in the air so it will be good to have somebody independent to look at these cases. Somebody who understands finance, it could be a financial advisor, planner who is not emotionally involved and who can take a impartial view.
The problem really comes up when there are assets which are undividable, for example you bought a property in which you are living and it was taken in joint ownership and you have taken a joint loan on that property then the issue comes up if I have to share that then the other member will have to pay half the value of the property and that may not be always very easy.
In such a situation one will need to go back to the bank and see how the single member who is going to continue owning the property and also whether that one member is in a position to continue paying the full EMI, if not then the other member needs to either contribute or agree to contribute for some more time or you then find some other co-owner to sign up with you for this to continue.
Q: What does the law do to protect the non-earning member?
A: Off-hand, I do not have an answer to that but essentially, what you need to do as a married couple is that the earning member needs to take the responsibility to ensure that the lifestyle of the non-earning member is continued to be maintained but I will have to re-verify that.
Caller Q: My friend is in the middle of a divorce, I wanted to find out which one of them can claim the tax deduction for dependent which is a child?
A: At the present moment, one of the two members with the higher income - whenever the child’s income started would have clubbed the child’s a) income and b) also all the deductions available on the expense of the child. So that person would continue to get that benefit. If there is a court sort of settlement or a settlement otherwise where the child’s custody is given to the other member then the other member would get the benefit. So the person who is not looking after the child’s maintenance will not continue to get the benefits from the financial year after this separation takes place.