The split-up: How to protect your assets before and after marriage
Prenuptial agreements are more likely to recognized for Hindus under the Special Marriage Act, helping to protect assets and clarify inheritance. Family courts have become more receptive to these agreements, viewing them as beneficial in mitigating disputes during divorce proceedings.
When marriages end in divorce, it can get quite ugly, especially when it comes to dividing property and assets. The courts award both interim maintenance and final settlement amounts, even in the case of mutual divorce.
These can impose a heavy burden upon one of the spouses. According to lawyers that Mint spoke to, several solutions are available. While none of them is foolproof, each can reduce the risk in litigation.
Why you should protect your assets
Marriage is generally entered into with the thought of living ‘happily ever after’ and few imagine that things will go sour. However, a certain percentage of marriages fail every year. There are no defined laws on the division of assets and court judgments can vary hugely according to the view taken by the judge overseeing the case.
One spouse does not automatically get 50% of the assets and property. The courts aim to maintain the same standard of living for both spouses after separation, which could mean the spouse who brought a large number of assets into the marriage may suddenly find himself or herself compelled to pay a large sum as maintenance or final settlement.
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In the absence of defined laws, divorce cases can drag on for several years. A family lawyer, on condition of anonymity, told Mint it is a common practice to file interim maintenance applications under the Hindu Marriage Act, Domestic Violence Act and Section 125 of the Code of Criminal Procedure (now replaced by the Bharatiya Nagrik Suraksha Sanhita or BNSS). Once interim maintenance is granted, it can take five to seven years for a final decree.
Prenuptial agreements
In the case of marriages under the Hindu Marriage Act, the courts do not generally recognize prenuptial agreements. These are considered as opposed to public policy and hence void under the Indian Contract Act, 1872.
"The law views Hindu marriage as a sacrament and not a contract. In the past, courts have taken a view that prenuptial agreements can be considered as promoting separation or divorce and are hence against public policy," said Varun Sriram, a partner at J Sagar Associates.
Moreover, conditions in a prenuptial agreement that deny a spouse alimony or maintenance will be considered invalid because it overrides their statutory rights.
"However, the chances of recognition of prenups, or at least their persuasive value, are higher in the case of Muslims, Christians and Parsis, who are governed by different laws that recognize the contractual element in marriage," said Ankur Borwankar, founder of Prenup India, a platform to create prenuptial agreements online with legal experts.
“If you look at the Nikah namah under Muslim law or the Indian Divorce Act for Christians, there are some differences compared to the Hindu Marriage Act. Nikah namah, an Islamic marriage contract, can have certain terms and conditions of marriage, which can be considered in the nature of a prenup," Sriram said.
Similarly, an ante-nuptial contract is explicitly recognised in the Divorce Act, 1869, which applies to Christians, said Borwankar. The Portuguese Civil Code, 1867, which applies to persons domiciled in Goa, also recognizes ante-nuptial agreements.
Prenups have a higher chance of recognition for Hindus marrying under the Special Marriage Act (SMA).
“Where parties are married under the Special Marriage Act, prenups in a relative sense may have more value since they wouldn't be considered violative of any personal law, otherwise applicable," said Sriram of JSA.
A couple keen on entering a prenuptial agreement can consider registering their marriage under the SMA. This doesn’t prevent them from having a separate wedding ceremony as per their customs.
However, it should be noted that in such cases, succession laws will apply as per the Indian Succession Act. The personal laws of the spouses, regardless of their religion, will not determine inheritance.
Sriram of JSA said in the recent past, family courts have looked at prenups more liberally to understand the context and intentions of the parties, which have helped them to avoid long-drawn contests and effectively conclude such matters.
One such case is the Commissioner of Income Tax v Mansukhrai More (1988), Borwankar pointed out. The Calcutta High Court had to decide whether a trust created by the assessee for his children was for adequate consideration or not for income tax purposes.
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The court held that the assessee was bound to create the trust under a prenuptial contract with his wife’s mother and hence not liable for the additional assessed income. Thus, the court indirectly accorded recognition to prenuptial agreements.
According to Sriram, under certain circumstances, it may be good for couples to consider and enter into prenuptial agreements to provide for and preempt certain aspects and protect their assets, especially related to pre-marriage assets and other inheritances.
“These agreements can be executed with nominal stamp duty and credible witnesses. Notarization, video recording, or registration are additional options if required," said Sriram.
How can a trust help
Forming a private trust before a marriage can help in separating and protecting pre-marital assets, including inherited property, from potential matrimonial disputes and division of assets in divorce proceedings.
Dhanashree Datar, a legal advisor at LegaLogic, said under Indian matrimonial laws, assets acquired before marriage generally remain separate property, but complications arise when such assets are used for family purposes during the marriage.
“Such assets often commingle with marital property. A pre-marital trust creates a distinct legal entity that holds title to the settlor’s (in this case the spouse who is creating the trust) assets, ensuring clear demarcation between pre-marital wealth and assets acquired during marriage. This structure provides protection against claims under Section 27 of the Hindu Marriage Act or similar provisions in other personal laws, as trust assets remain legally separate from the spouse’s personal estate," she said.
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Sriram said while a trust is an option, it could have limitations.
“In settlement of immovable property, the restriction is that stamp duty remissions wouldn't apply even if the beneficiaries are related," said Sriram of JSA.
Postnuptial agreements
Can a postnuptial agreement be upheld in court? According to legal experts, they are not treated differently from prenup agreements.
More importantly, when a marriage has already turned sour and the matter has reached the court already, any attempt to ‘dispose of’ or move assets into a separate entity can be regarded by the court as a deliberate attempt to frustrate alimony or divorce-related judgments about money. This includes creating a trust and transferring assets to parents or siblings.
However, there are three assets that cannot be attached by the courts even if there is an adverse judgment against you. These are the balances in your Employees Provident Fund, Public Provident Fund and National Pension System.
Another solution is to sign a postnuptial memorandum of understanding on how assets will be divided in the event of a divorce. While this, too, may not be enforced by the court, it can have persuasive value, according to Borwankar.
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