STRUCTURING MATRIMONIAL LIABILITY

While we are hopeful that our society maintains the sanctity of marriage, it is always prudent to plan for the worst in order to insulate the family wealth

The holy institution of marriage, which has originated from the scriptures, is slowly getting tainted by the concepts of the western civilization and is there by evolving over time. The age-old tradition of the meeting of families and joint family discussions for marriage, has given way to a more independent approach of personal choice. Though such a choice, shall always be influenced (to some extent) by the advice of the parents, close family members and friends, gone are the days wherein marriage was considered as a blending of families, while the two individuals formally tied the knot. The positive side is that this evolution has allowed the concerned individual to gain greater autonomy in the process. The individual may choose to not marry, have a live-in relationship, marry after a certain age and/or may even choose to terminate the marriage, if they deem it so. While such autonomy is natural to a progressive society, individuals maturely also plan for the fallout of such marriages, just like a commercial contract. Important to note that unlike other commercial transactions, the parties suffer emotionally and financially when the marriage is terminated or dissolved. In light of the above, it has become necessary to analyze and plan one's estate in great detail to ensure that one is protected from matrimonial liability, if one decides to enter into holy matrimony.

Understanding Matrimonial Liability

Matrimonial liability in India, is a form of financial assistance provided to a party (interim, while the divorce proceedings are ongoing or permanent), in order to ensure that an equitable standard of living is maintained by the dependent party, similar to such standard before their separation. In common parlance, matrimonial liability is typically understood as an equal division of assets between the couple on account of their separation ("Principle of Community Property"). However, in India, the Principle of Community Property is not recognized. Rather, the manner of awarding financial remedies on separation is largely governed by the court's discretion as well as the consent terms agreed to by the parties (if any).

Financial remedies available to the couple are further dependent on the legislations applicable to them (depending upon the faith of the couple and other such factors), which may amount to separate legal remedies. For example, the Hindu Adoptions and Maintenance Act 1956 (primarily applicable to Hindus, Buddhists, Jains and Sikhs)¹ ("HAMA"), provides for maintenance to include provision for food, clothing, residence, education, medical attendance and treatment². Under HAMA, while a Hindu wife is entitled to maintenance, the husband is not.³ Pertinent to note that, the Bombay High Court in the case of Bhagyashri v Jagdish⁴, has affirmed that even a husband can seek maintenance from his wife, as per the Hindu Marriage Act 1955.

On the other hand, a remedy may also be pursued by the wife under the Criminal Procedure Code 1973 (which is secular in nature) ("CRPC"). The wife (or the ex-wife, as the case may be) may claim maintenance if it shown that: the husband / ex-husband has (a) sufficient means; and (b) neglected or refused to maintain her and/or their child. A remedy for maintenance under CRPC and HAMA exists in tandem and the mere fact that a similar analogous remedy is available under HAMA in a civil court, does not take away the jurisdiction of the magistrate under the CRPC to order maintenance to a Hindu wife⁵.

The quantum of maintenance awarded is fact-driven. The Supreme Court of India had in its pronouncement, set a benchmark for maintenance (on a case-to-case basis) to be paid by a husband to his estranged wife, stating that 25% of his net salary might constitute a "just and proper" amount as alimony.⁶ While there are statutory provisions around maintenance, consent terms arrived at between parties can override the provisions of these statutes and courts seldom interfere with such terms ("Consent Terms"). However, Consent Terms can be overridden by the courts (although seldom done) in cases where the wife gives up or relinquishes her right to claim maintenance altogether. This is considered opposed to public policy, and therefore, such an agreement, even if voluntarily entered, is not enforceable.⁷

Trusts & Matrimonial Liability

Basis offshore experience, we have seen that trusts are used as a driving vehicle not only for asset protection but also for structuring Consent Terms. Due to the nature of competing interests involved in the negotiation and execution of such Consent Terms, trusts provide for a unique structuring solution wherein concurrent and successive beneficial interests can be created, with greater flexibility. Typically, an execution of a basic set of Consent Terms involves one parent contributing funds for maintenance of the child, while the other is faced with the challenge of being financially prudent with the 'maintenance funds', while caring for the child. A trust structure on the other hand, allows the parents to be flexible with their duties, considering that their actions will only be for the greater good of the beneficiaries (typically, the child). For example, we see a parent with a background in finance take up the role of the investment advisor, so as to ensure that the trust corpus (i.e., the maintenance funds settled into the trust) is financially well maintained / invested and give the other parent the overall control of the trust (who acts as trustee of such trust).

On the other hand, families may use irrevocable discretionary trust structures as a mechanism for inter-generational transfer of wealth ("Family Trusts"). Family Trusts allow for asset protection and insulation from debts and liabilities, subject to such settlement being in accordance with the applicable laws and is being done without any fraudulent intent. Typically, such Family Trust (rather, the discretionary share in such trust) is understood to be personal property of the individual (which has been acquired prior to marriage and/or is considered inherited property). Therefore, it may be argued that there has been no contribution of the spouse of such individual in acquiring such property and thereby, should not be considered for the purposes of arriving at the Consent Terms. A view may also be taken, considering the Family Trust is a discretionary trust, and the individual has no concrete share in the same, that such Family Trust property cannot be equated to be the property of such individual.

Nuptial Agreements & Matrimonial Liability

Another popular offshore mechanism utilized, in order to deal with matrimonial liability and provide framework for the Consent Terms in a structured manner, is a marital / nuptial agreement ("Nuptial Agreement"). The contents of a Nuptial Agreement may vary widely, but it commonly lays out the terms of division of property amongst partners, terms of spousal support and their respective financial obligations in the event of a divorce (thereby influencing the Consent Terms). It is important to note that a Nuptial Agreement must be simply an agreement contemplating the terms of separation in the case of dispute, separation and/or divorce and must not be interpreted as a future separation agreement (i.e., parties contracting for separation at a predetermined future date)8.

The Nuptial Agreement must be a legally binding and valid contract as per the Indian Contract Act 1872; both the parties should sign only after proper legal representation, preferably in front of witnesses or the notary; and clauses in the agreement should be reasonable, so as to ensure both parties benefit equally. While the benefits of Nuptial Agreements are manifold, in light of lack of formulation of relevant laws or policies and the uncertainty in terms of the judicial stance towards Nuptial Agreements, the validity of Nuptial Agreements in India remains ambiguous.

CONCLUSION

In light of the above and considering the applicable laws, it has become necessary to understand and structure personal assets in a legally compliant and efficient manner. While we are hopeful that our society maintains the sanctity of marriage, it is always prudent to plan for the worst in order to insulate the family wealth.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.