Is Divorce Insurance a Need?

Divorce which is dissolution of marriage; is the process of terminating a marriage. Divorce is very common in Western countries like US, UK, Canada and France. India is fortunate to have low divorce rates, but this is fast changing. A census conducted way back in 2011 showed 13,62,316 divorces in India. The number is much higher today.

Why is divorce increasing in India?

• Women in the past were not educated and couldn’t get jobs. They had to depend on the husband for finances. (The husband took care of all her financial needs). Men would dominate their wives beating them or demand dowry. Women had no option but to suffer as the husband took care of their needs. Women in India are becoming financially independent. They can earn and manage finances today.
• Society pressure meant the divorced woman couldn’t move back to her parental house. Divorce was frowned upon in society. This attitude is slowly changing as divorcees are accepted in society. If women find married life painful, they are willing to divorce their husbands.
• Cheating on the partner is another common case for divorce. It’s done with smartphones and apps in seconds.
• Sham marriages are another cause of divorce in India. These are marriages arranged for money, to go to a foreign country like the US or marriages of convenience. Many a time these marriages end in divorce.

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What is Divorce Insurance?

Divorce insurance is usually availed at the time of marriage, and covers financial costs pertaining to a divorce. For shaky marriages, divorce insurance may be a good idea.

The divorce insurance premium depends on your income or the earning profile of the couple. (Husband and Wife). There would be a waiting period of 2-3 years when the divorce insurance claim is not admissible.

Divorce insurance offers standard cover of Rs 25-30 Lakhs. Premiums are in the range of Rs 15,000 – Rs 18,000 a year. You can avail additional insurance through a top-up plan.

What is alimony?

Alimony is basically spousal support. The husband has a legal obligation to provide financial support to wife and kids in case of a divorce.

Alimony helps the divorced wife and kids enjoy financial security. There is no fixed amount the husband has to pay his wife and kids. It depends on his income and assets. The family court fixes the alimony (maintenance amount) which is paid each month or as a lump sum.

The divorced lady can file a case for maintenance before the Court. After considering the income, assets and property of the husband, the Court awards a proper maintenance.

There is no upper limit on the alimony amount which can be sought by the wife. For a lump-sum settlement; the wife can get up to one-third the husband’s net worth.

Why divorce insurance in India?

• The average alimony per divorce in India stood at Rs 15 Lakhs. This is a sizeable amount and many husbands in India would hesitate to pay this amount to support their wife.
• Legal expenses and child support may run into several lakhs of rupees.
• Alimony payment amount has gone up by 35-40% in the last few years, keeping up with inflation.
• Crores of Indians don’t do financial planning and India is not a financially literate country. Husbands would try to run away from the alimony and the wife would not get her dues.

• The amount and time for which alimony is paid, depends on how long the marriage lasted. If the marriage lasted for more than 10 years, then lifelong alimony would be paid.

Divorce insurance can be a game changer in such circumstances.

When is alimony paid?

Working Woman:

Let’s say a woman is working and earning a decent amount. Now, there’s a substantial difference between her and husband’s net worth. She is granted alimony to enjoy the same living standards as her husband.

Non-working woman:

The Court looks at the woman’s age, educational qualifications and her ability to earn, before fixing the alimony amount.

Child support:

Alimony and child support are different. Child support and maintenance must be provided for separately by the father of the child. However, if the woman is earning, she will have to bear child support in proportion to income. If the husband cannot earn due to a disability, and the wife is earning, then no alimony is paid.

Alimony and child support are different. A father must pay for his child’s maintenance. If a woman doesn’t have the money to fight the divorce proceedings, she can ask for interim maintenance. This money would help till the divorce is settled.

How much alimony is paid?

The Supreme Court of India has capped monthly alimony at 25% of husband’s gross salary. This moves in-line with husband’s salary.

In case of lump sum settlement, it ranges from 1/5^th to 1/3^rd of husband’s net worth. This is a one-time settlement.

Is alimony taxed?

Alimony which is in the form of monthly or quarterly payouts is treated as a revenue receipt. It is taxed in the hands of the receiver. (The lady has to pay the tax). The alimony is added to her taxable salary and taxed as per income tax brackets. There is no tax deduction available.

A lump sum settlement is considered to be a capital receipt. This is tax-free.

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