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While no couple in the world thinks of a divorce when tying the knot, such uncertainties are bound to arise. If one looks at statistics, it would be of no surprise that on an average, at least 6,600 divorces take place every day worldwide, which translates to roughly 257 divorces per hour, which culminates into 2.4 to 2.5 million divorces annually on a global scale.
If we are talking about India, a country with a population 1.44 billion (crore), with an adult, marriageable population of 980 million (98 crore) with an estimated married population of 720 million (72 crore, assuming that 75% of adults are married), then the divorce statistics paint a less daunting picture with annual divorces ranging from 1,30,00 – 1,50,00 cases that amounts to roughly 15 to 17 divorces.
However, even with such low divorce rates (1% of total married population),Urban areas and NRIs show higher rates compared to rural regions. Rising urbanization and increase in literacy rates as well as women becoming more aware of their rights,aim to change that picture, with people choosing to walk away from uncomfortable situations rather than stick with a spouse they are not compatible with.
In order to prepare against such uncertainties, protecting one’s assets from divorce becomes important.
Why do NRI Couples have higher divorce rates?
Cultural Clashes or Adaption Challenges: One or both partners might find difficulty acclimating to the new country, lifestyle or cultural changes as they face what they might find, a culture shock.
Legal and Immigration Complications: In certain cases, one spouse can face issues that range from VISA dependence, financial dependence or worst case scenario, abandonment abroad.
Lifestyle Expectations: Moving abroad simultaneously raises lifestyle expectations with respect to income, gender equality and finances, if reality does not match these expectations then dissatisfaction can crumble the marriage fast.
Financial Stress: High cost of living , visa-related employment restrictions, or financial mismanagement can lead to stress, especially when one spouse is financially dependent.
Are Premarital Assets protected from divorce? Role of Prenup and Postnuptial agreements in NRI Marriages
In order to answer this question we need to understand the various scenarios where pre-marital assets become marital assets, these scenarios entail:
- Commingling of Funds: If savings and inheritances that have been accumulated before marriage, are now placed in a joint account and are used for shared expenses by both spouses, then they will no longer be considered separate.
- Appreciation of assets due to Marital Effort: If one or both spouses contribute to the appreciation of an asset such as business/real estate then the portion of the appreciation can be subjected to division amongst the spouses.
- Title Transfers: If a spouse voluntarily adds their partner to the title of ownership of the premarital property, then the property is considered marital property.
So to answer the question of “Are Premarital Assets protected from divorce?”, one can draft a well thought out pre and post nuptial agreement where both spouses can decide which properties can be separate and which properties that they have a joint ownership over.
Strategies for NRIs to Protect Premarital Assets from Divorce
- Keep Premarital Assets Separate: Spouses can avoid depositing their premarital funds into joint accounts and/or use them for shared expenses.
- Proper Documentation: Spouses should keep each and every records or documentation of expenses, savings, gifts and inheritances so that it can be used as a proof of ownership in court.
- Consulting a Divorce Attorney: Hiring an experienced attorney can help spouses to refrain from making mistakes that can cost their separate assets.
Does a trust protect assets from Divorce?
Trusts can be defined as a separate legal entity that can hold assets for the benefit of beneficiaries. There are several type of trusts that NRIs can use to protect their assets from divorce:
- Irrevocable trusts: Trusts that are powerful in protecting one’s assets as the individual who created the trust is no longer considered the owner.
- Discretionary trusts: Beneficiaries do not get easy access to these trusts, therefore they make it harder to claim it for divorce.
- Spendthrifts Clauses: Restricts the access to trusts, for both creditors and former spouses.
Timings of the trust also matters, as trusts that have been set-up before marriage have stronger protections than trusts that have been set-up during or after marriage, during such situations, the spouse can be considered a beneficiary and is entitled to access the trust which might be a factor that is taken into consideration by the courts. Assets that are added in the trust during marriage are also considered marital assets.
Setting up a trust to protect assets from a divorce for NRI Couples
Choose the Right Trust: Choosing the right trust determines the strength of the protection of your assets from divorce. Trusts like irrevocable, discretionary, spendthrift trust are ideal when you want to protect your assets post nuptials.
Choose the Right Timing: Pre-marriage trust has the highest form of asset protection than post-marriage trust. Therefore it is necessary to maintain proper documentation and records of everything.
Fund the Trust Properly: Make sure that you are using your separate assets to fund the trust properly (gifts, inheritance) instead of using a joint account or commingling of funds to do the same. Record every transaction as an intention for separating.
Naming the right beneficiary: Naming the beneficiary is also important, if you want your assets to be protected post divorce, then it’s best to not name your spouse as a beneficiary. To enforce best legal protection you can name a trustee.
Include a Spendthrift Clause: Including a spendthrift clause will enable protection against creditors and court claims.
Combining Trust with a Prenup and Postnuptial agreements: Reinforcing one’s trust with legal agreements with prenuptial and postnuptial agreements to properly define and address separation assets is the best form of asset protection that one can ask for.
Understand Jurisdictional Laws: The same asset protection laws will not apply in all jurisdictions, therefore NRIs must understand the applicability of various jurisdictions in such cases and seek legal advice for enforcement.
Consulting Legal and Financial Professionals: Instead of doing the heavy-lifting by yourself, make life easier by consulting legal and financial professionals as their expertise will provide tailored setup with estate planners, family law attorneys, and tax advisors along with regular review, trust, structure and compliance.
For an estate planning outline, you can read this blog for a clear picture
Conclusion
Nobody wants to go through a divorce, it is an unfortunate uncertainty for an otherwise fruitful union between families across the world. Nobody wants a divorce to empty their pockets either, therefore to protect their assets in case of such an uncertainty, it is necessary for spouses to strategize and preserve their wealth.
