Getting a divorce? Here's how you can split money amicably
A simple way to divide savings in the form of shares, mutual funds and
fixed deposits is to liquidate them and share the proceeds. However,
premature liquidation may mean you may lose out on the returns.
Most couples treat savings and investments as common assets. In the event of going back from 'our' to 'mine', these too need to be divided, a process that may turn out to be quite complex.
You can do a few things to make the transition smoother. The first step should be to calculate the share of each based on individual contributions. Cash shouldn't be a problem when it comes to dividing the savings. Bank accounts that are held jointly can be terminated and the balance divided accordingly. However, dividing other savings requires extra effort.
Mutual fund units also can be held in demat accounts. You can transfer units held in one account to another if they are not within the lock-in period. You can get your physically-held mutual fund units converted into the electronic form and then share them with your spouse if you don't want to sell them.
Others
Apart from equities and mutual funds, you may have saved money in provident funds, term deposits and gold. As you cannot dip into the provident fund accounts, you will have to exclude them from the divorce settlement or adjust them against other investments.
Jewellery is considered the wife's property, but nothing stops her from sharing it equally. Pureinvestment assets such as gold coins, e-gold and exchange-traded funds, or ETFs, will have to be divided proportionately. E-gold and ETFs are easier to dispose of as they are held in demat accounts.
Bank fixed deposits can be redeemed before maturity, but this may invite a penalty. Banks offer a lower rate when a term deposit is closed prematurely. Depending on the loss that you will incur on early redemption, you may want to leave the account undisturbed. In such a case, you can have the division of such accounts documented in the divorce agreement.
You can do a few things to make the transition smoother. The first step should be to calculate the share of each based on individual contributions. Cash shouldn't be a problem when it comes to dividing the savings. Bank accounts that are held jointly can be terminated and the balance divided accordingly. However, dividing other savings requires extra effort.
ALSO READ: How to plan your finances when getting a divorce
A simple way to divide savings in the form of shares, mutual funds and fixed deposits is to liquidate them and share the proceeds. However, premature liquidation may mean you may lose out on the returns.
Equitable Distribution
Stock market investments give best returns in the long run. If your stock portfolio is valued at less than the purchase price due to poor market conditions, exiting immediately will not be in your best interest.
Like bank savings accounts, you can hold demat accounts both individually and jointly. Shares from one account can be transferred to another via 'off-market' transactions. However, you cannot change the name of the account holders or convert a joint demat account into single-holder account. The only option is to open individual accounts and transfer the shares into them. You will have to pay fees for these transactions if the destination account is not identical (held by the same persons).
ALSO READ: How to settle a joint home loan when getting a divorce
Shares that have been pledged cannot be transferred without the consent of the lender.
Transfer of shares as a gift to demat accounts held by specified relatives (which includes spouse, children, parents, siblings and other lineal descendants) does not attract any tax. Under ordinary circumstances, income from such stocks is clubbed with that of the donor for taxation purposes. But there is no clubbing when the transfer is part of the separation agreement.
Mutual Funds
You might have invested in mutual funds as well. In funds that offer tax benefits, you may also have to look at the lock-in period. Surrendering funds such as unitlinked insurance policies before the stipulated time (five years) means you may have to pay surrender charges. Even after this, you will get the money only after the lock-in period is over. Equitylinked savings schemes investments cannot be withdrawn or units transferred before the threeyear lock-in period.
Exiting tax-saving investments before time will also lead to reversal of the tax deduction that you may have availed of on these. Considering these factors, financial planners advise drawing up an agreement determining the payment liabilities of each spouse and their claim on the maturity proceeds. Such an agreement will ensure that both continue to enjoy the benefits of long-term financial planning.
ALSO READ: How to split your property when getting a divorce
A simple way to divide savings in the form of shares, mutual funds and fixed deposits is to liquidate them and share the proceeds. However, premature liquidation may mean you may lose out on the returns.
Equitable Distribution
Stock market investments give best returns in the long run. If your stock portfolio is valued at less than the purchase price due to poor market conditions, exiting immediately will not be in your best interest.
Like bank savings accounts, you can hold demat accounts both individually and jointly. Shares from one account can be transferred to another via 'off-market' transactions. However, you cannot change the name of the account holders or convert a joint demat account into single-holder account. The only option is to open individual accounts and transfer the shares into them. You will have to pay fees for these transactions if the destination account is not identical (held by the same persons).
ALSO READ: How to settle a joint home loan when getting a divorce
Shares that have been pledged cannot be transferred without the consent of the lender.
Mutual Funds
You might have invested in mutual funds as well. In funds that offer tax benefits, you may also have to look at the lock-in period. Surrendering funds such as unitlinked insurance policies before the stipulated time (five years) means you may have to pay surrender charges. Even after this, you will get the money only after the lock-in period is over. Equitylinked savings schemes investments cannot be withdrawn or units transferred before the threeyear lock-in period.
Exiting tax-saving investments before time will also lead to reversal of the tax deduction that you may have availed of on these. Considering these factors, financial planners advise drawing up an agreement determining the payment liabilities of each spouse and their claim on the maturity proceeds. Such an agreement will ensure that both continue to enjoy the benefits of long-term financial planning.
ALSO READ: How to split your property when getting a divorce
Mutual fund units also can be held in demat accounts. You can transfer units held in one account to another if they are not within the lock-in period. You can get your physically-held mutual fund units converted into the electronic form and then share them with your spouse if you don't want to sell them.
Others
Apart from equities and mutual funds, you may have saved money in provident funds, term deposits and gold. As you cannot dip into the provident fund accounts, you will have to exclude them from the divorce settlement or adjust them against other investments.
Jewellery is considered the wife's property, but nothing stops her from sharing it equally. Pureinvestment assets such as gold coins, e-gold and exchange-traded funds, or ETFs, will have to be divided proportionately. E-gold and ETFs are easier to dispose of as they are held in demat accounts.
Bank fixed deposits can be redeemed before maturity, but this may invite a penalty. Banks offer a lower rate when a term deposit is closed prematurely. Depending on the loss that you will incur on early redemption, you may want to leave the account undisturbed. In such a case, you can have the division of such accounts documented in the divorce agreement.
