Couple talk – How and why to ‘divorce’ your finances

• Professionals say one should create a joint account for common expenses but keep individual accounts for personal spending.
  
• It is advised to own illiquid assets like business, property etc. on individual names.
  
• A couple should discuss financial goals and potential scenarios, including the possibility of a divorce.
  

Till death do us part, the saying goes. Unfortunately, for some couples, it is not so. While it is never easy and is always the last option, it is reality that one may not be able to avoid a separation or a divorce.

Apart from the emotional distress that comes with it, there can also be financial ones as in the life of a couple it inevitably gets mixed. If such a time arises, this can cause added complications in the already tough times.

Therefore, though the potential separation may be a time when one takes a hard look at finances, it is recommended that couples keep their finances separate to a certain extent even when in a happy space too.

Keeping finances separate

When it comes to bank accounts, different couples may have different ways of handling it, but ideally one should create a joint account for common expenses while keeping individual accounts for personal spending.

“Keeping separate accounts for personal expenses might lead to a lack of financial transparency and trust in the relationship, potentially causing strain.Hence it is important to be open, transparent and honest about personal spending. Relationships are based on utmost faith and trust. A single doubt can lead to bigger problems in a relationship,” says Hina Shah, director, LUHEM, a financial planning firm.

Equitable distribution of shared assets

Pre-nup agreements are not recognisable in India. Disputes can arise, especially regarding who contributed more to shared assets like a house

To minimise complications with joint assets in a marriage certain steps can help. Clearly define ownership shares in shared assets, like property and vehicles, and maintain detailed records of financial contributions.

One may get a lawyer to help with the legal aspects, while a financial advisor or consultant can help with the financial aspect.

“As most of the time fixed assets and other assets are purchased in joint holding and sometimes one partner may have contributed more, it can lead to problems.

It can be mutually agreed and transferred to one person when that person has contributed more considering all the aspects of tax implications etc,” says Shah.

In the situation of a divorce, the disputes usually happen on illiquid assets like property, jewellery etc. “If one partner seeks immediate liquidity while the other don’t, and they have joint ownership, this can lead to disputes on agreeable prices. Hence, it’s always better to own illiquid assets like business, property etc on individual names,” says Abhishek Banerjee, Founder & CEO, Lotusdew Wealth and Investment Advisors. However, this may not always be possible.

Open communication and financial planning

It is recommended to regularly discuss financial goals, expectations, and potential scenarios, including the possibility of divorce as a couple. Couples may not be comfortable doing so, but it is important. It's important to find a financial approach that suits both partners and encourages trust and communication within the marriage. Shah says that seeking advice from a financial expert and possibly a legal expert can be beneficial in navigating the complexities of Indian financial matters and marriage considering all tax implications.

“I think as soon as you feel kinks as a couple, financial independence should be your priority. Often the issues arise in how each partner spends money, and if each is able to operate financially independently, a lot of the times the issues actually vanish, and they continue in the marriage as before,” says Banerjee.

Divorces can be emotionally distressing for both parties. Clarity on financial matters can make things a bit easier.