Navigating financial aspects post-divorce: How to engage with a wealth advisor
The situation is often more overwhelming for Indian women, 50% of whom are not active investors, according to a survey by LXME.
The widely used Holmes-Rahe Stress Scale, developed to measure the causation between stress and illness, ranks divorce as the second most stressful life event. The case is further complicated in a conservative country like India. Though we still have one of the lowest divorce rates in the world at 1%, the number of divorcees has doubled over the past two decades. Divorce is more prevalent among the affluent, and is an expensive affair, laden with complicated financial decisions that severely impact the post-divorce life of both individuals.
The situation is often more overwhelming for Indian women, 50% of whom are not active investors, according to a survey by LXME. Furthermore, a UBS global study indicates that even for high-net-worth women, the men in their households manage their financial planning. In this emotionally riveting period, taking wise and strategic financial decisions becomes difficult. Strategically planning alimony, navigating division of joint-owned properties, estimating streedhan, and investment objectives post-divorce are crucial decisions that need to be backed by strategy.
While the first step of a divorce is finding a strong lawyer, few recognise the importance of a wealth advisor, who are custodians of wealth for business families and the affluent. They ensure emotionally-driven, unplanned financial decisions are not made before, during, or after divorce.
Bringing in a wealth advisor is crucial at two stages: (i) During the divorce, they assist in deciding settlement sums and supporting attorneys. (ii) Post-settlement, they navigate inherited wealth by guiding investments, advising on estate and succession planning, and managing philanthropic objectives.
Once a wealth advisor has been onboarded, here are five questions to initiate the engagement in the right direction:
1. Can you help me understand the financial impact of my divorce, and how do I work through the financial issues of separation? Divorce has a significant impact on income, assets, debts, and expenses. The wealth advisor can provide insights based on the applicable personal and religious laws, and help individuals accordingly make informed decisions regarding property division, alimony, child support, and other financial matters.
2. What are the tax implications of dividing assets during the divorce, and can you provide me with guidance on how to minimize my tax liabilities? Each asset distribution has a unique tax implication. By analysing the tax basis, capital gains, and potential deductions, the advisor can provide guidance on structuring asset division to minimize tax liabilities.
3. How can we manage ownership of joint custody accounts during and after the divorce, and what should be done to ensure both parties have equal access to the accounts? Managing shared financial responsibilities of joint custody accounts is a significant concern. A wealth advisor guides on setting up appropriate permissions, establishing communication channels, and implementing systems to track contributions and expenses.
4. How do we demarcate our assets if we have co-ownership of an enterprise, what is the best way to determine the fair value of the enterprise, and how can we ensure each party gets their fair share of the assets? While demarcating assets in case of co-owned enterprise, courts often rely on factors such as financial statements, market analysis, and industry benchmarks to determine the fair value. The wealth advisor can help engage professionals specializing in business valuation, ensuring an accurate assessment.
5. Can you help create an investment strategy to meet financial goals post-divorce, and how can I ensure my investment is aligned with my financial situation and goals? After divorce, reassessing financial goals and investment strategy is crucial. A wealth advisor considers factors such as risk tolerance, time horizon, income requirements, and long-term objectives, to recommend options, and create a diversified portfolio aligned with the current financial situation and goals.
Divorce is never pleasant, and it must be admitted that no amount of planning could help manage the emotional burden of the process. But sound financial planning is crucial during the process of divorce, and the role of a reliable wealth advisor is key.
Nita Shivdasani is an executive director and head of heritage at Waterfield Advisors
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First Published:7 Jun 2023, 10:43 PM IST
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