Money and marriage: Can a prenuptial agreement protect husband, wife both from potential financial distress?

Bangalore techie death: The recent death of a Bengaluru professional, reportedly as a result of mistreatment regarding substantial alimony demands by his estranged wife, has prompted a nationwide dialogue on the legal implications of divorce proceedings.

Despite marriage traditionally being revered as a sacred custom in India, divorce rates have been steadily increasing throughout the country over the last decade. The termination of a marriage is frequently a profoundly emotional and intricate legal procedure. In India, the financial consequences of divorce are regulated by laws governing alimony, maintenance, and child support.

These regulations are designed to ensure equitability and financial security for both parties, particularly in situations where one spouse is financially disadvantaged. While these laws are intended to be impartial, their implementation often allows for various interpretations and personal difficulties.

With the changing dynamics of family structures and the increasing independence of women in the workforce in India, there is a growing debate on whether prenuptial agreements should be more commonly used. 

Prenuptial agreement

A prenuptial agreement, often referred to as a prenup, is a legal contract signed by a couple before their marriage that establishes how assets and financial obligations will be divided in the event of a divorce.

In the past, prenuptial agreements were viewed as contradictory to Indian marriage customs, but they are now increasingly acknowledged for their advantages. As societal norms and marital dynamics shift, it is important to investigate how prenups can be seamlessly incorporated into the Indian legal system.

According to the Indian legal system, Hindus are governed by the Hindu Marriage Act, while Muslims and Christians have their own marriage Acts. Prenuptial agreements are not commonly acknowledged under personal laws as marriages are perceived as sacraments. Any agreement advocating for separation is deemed contrary to public policy and, therefore, deemed invalid. 

"India (barring the state of Goa) does not have a community of marital property law - this means that married couples may continue to acquire assets in their sole name and the other spouse has no legal claim on any such asset, unless purchased jointly. However, in a case of divorce, the entire net worth and future earnings potential of both spouses is up for scrutiny and a balanced amount can be given as alimony / maintenance by the court," said Bijal Ajinkya, Partner at Khaitan & Co. 

"Given the sharp rise in divorce and maintenance cases in recent years, it has become increasingly critical for couples to consider having a prenuptial or post-nuptial agreement in place. Such agreements provide a clear and binding framework that can protect both parties from potential financial distress in the event of a separation. By setting out the terms ahead of time based on the actual income, assets, and financial circumstances of both individuals these agreements would ensure that both parties are treated fairly and without bias," said Shivalika Midha, Advocate Associate at Jotwani Associates.

How can a prenup agreement help

Experts discuss that prenuptial agreements offer a clear structure for outlining assets and financial duties. In countries like India, where joint family assets and inherited wealth frequently complicate marital finances, prenups can protect personal assets from potential conflicts. Individuals with significant net worth and substantial ancestral properties stand to gain the most from these agreements, as they ensure protection of assets in the event of prolonged legal disputes during divorce proceedings.

"In addition to providing financial security, prenuptial or post-nuptial agreements would help to avoid the costly and often prolonged legal battles that can arise from divorce or separation. For example, without an agreement in place, one or both parties may be forced to file for maintenance or endure lengthy legal proceedings to determine financial obligations, which can lead to significant emotional and financial strain.
By addressing these matters upfront, couples can minimize uncertainty, avoid unnecessary expenses, and create a more straightforward and equitable resolution should the relationship end. This proactive approach is not only financially wise but would also help maintain peace of mind, knowing that both parties are protected under mutually agreed terms," Midha added.

"The financial aspects are largely given effect as a contract between two parties while non-financial aspects such as custody are up to the court to finally decide on. To the extent that the agreement is not opposed to public policy, it may be enforceable to that extent. This allows for the discussion of finances – such as shared property, marital home, solely-owned property – to proceed in as amicable a manner as possible. This can provide for clarity on a critical aspect during a tumultuous period and prevent protracted litigation," Ajinkya added.

In absence of prenup agreements

In India, marriage is frequently perceived as a lifelong dedication, acknowledged not only by social norms but also by legal statutes. Therefore, considering the possibility of its termination may be deemed as a negative outlook. In absence of prenup agreements, navigating ambiguous circumstances necessitates open communication, complete financial disclosure, shared comprehension, and adherence to legal norms.

"Uncertain situations can be approached by discussing financial expectations and the possibility of entering into an amicable settlement. Additionally, both the parties must be aware of the laws and their rights and should always be willing enter into an open discussion and negotiation with their partner. While a prenuptial agreement is an effective way to actively manage these uncertainties, maintaining transparency, documenting finances, resorting to mediation and alternative dispute resolution can lead to safeguarding both your emotional and financial well-being," Shivalika Midha highlighted.

"In a scenario where it appears like a child’s marriage is heading for difficult times, as a parent it is advisable to make a ‘pre-nup’ trust - where only the child and their descendants can benefit but the child’s spouse cannot. Most families choose to do this before the marriage takes place but if not, such planning should certainly be done before the stage of acrimony. Where no such trusts exist, it is important to note that in such cases, most parties opt for out-of-court settlements prior to filing for divorce by mutual consent. This allows parties to agree on mutually acceptable terms and the court will largely abide by them unless it feels that one party is unduly disadvantaged by the terms. This preserves the reputation and dignity of families," Ajinkya noted.

Legal Reforms and Current Trends

Recent judicial developments, such as the increasing emphasis on standardized guidelines and mandatory counseling for prenuptial and postnuptial agreements by courts, underscore the necessity for legislative changes to improve their enforceability.

"It is best to have a prenuptial agreement or post-nuptial agreement between both the parties before marriage. It would help both the parties maintain financial as well as emotional stability. They would not have to bear any financial losses or go through mental distress in the absence of such agreements. There would be minimal legal costs, the process of divorce would run smoothly if distribution of assets would be decided priorly, and there would be no further unnecessary legal proceedings implicating either of the parties," Midha explained.

"The only negative aspect could be the validity of such agreements in the eyes of law. In case divorce proceedings are initiated by either party, having a prenuptial or post-nuptial agreement, would the terms of the agreement be considered valid or not, considering that it was signed before the marriage of the parties. Either party can question the finances of the other partner years later and demand for more. Apart from that, the cons would include a disagreement between the parties with respect to executing such agreement." 

"In a time when societal stigma on walking off a bad marriage has significantly decreased, families are more supportive of separations, it is best to take a pragmatic approach to such marital agreements. Such agreement should be considered carefully as discussions surrounding the same are delicate.  It is always desirable that parties undergoing separation do so in the most amicable and least public way possible. For this reason, marital agreements are extremely helpful not just in themselves but also while framing settlement terms as they show what the thinking of parties before and during the subsistence of marriage was," Ajinkya further added.