Thread by @financewsharan

Divorce rate has grown at a pace of 50-60% in the last 2 years in India📈

Experts say that alimony can be as high as 33.33% of your NET Worth🔻

Here's how you can protect your wealth in case of a Divorce👇

[1] Private Trusts

Under the Indian Trusts Act, 1882 any Indian can form a private trust irrespective of his/her net worth🤝.

But forming a trust involves a lot of time and costs. Hence, it is often used by the HNIs for safeguarding their assets.

[2] Types of Private Trusts

Two types of Private trusts in India:

🔸Revocable Trust: Easy to make changes and dissolve after formation. An alternative to Will

🔸Irrevocable Trust: Although assets cannot be withdrawn once transferred, the transferor retains full control

[3] Advantages of Irrevocable Trust

Families form private trusts in order to ring-fence (protect) their assets from erosion

👉 Protection from ex-spouse's claims over assets

👉 Systematic distribution of wealth to beneficiaries

[4] How Are Your Assets Ring-Fenced in Divorce

If you transfer all your assets like:

🔸Properties
🔸Equity Shares
🔸Gold

to a private trust, your spouse cannot claim them in case of divorce.

Even then you’ll have full control over the operations of your assets.

[5] Real Life Example

Back in 2017, a Delhi-based couple separated after two years of marriage💒

The husband had a lot of assets in his name.

By the time of divorce, his wealth shrunk heavily due to the transfer of assets to the trust and his wife was unable to make claims❌

[6] Facts About Private Trusts

Now that you know that wealth can be ring-fenced by forming a trust, here are some other important facts:

🔸As per Insolvency and Bankruptcy Code 2016, a 2 yr cooling-off period is required after transferring assets

🔸Trust is liable to pay taxes

[7] Taxation of Irrevocable Trust

Trustees are responsible for paying trusts taxes on time

In the case of irrevocable trust:

🔸Interest & dividends attract maximum marginal tax (upto 42.74%)

🔸Capital gains are taxed as per short-term and long-term slab rates

[8] Cost Involved

Here are some costs involved in the creation of a family trust:

👉Transferring immovable assets attracts a 5-8% stamp duty

👉Legal advisory, writing of deed, etc.

👉Cost of forming a basic small nuclear family trust comes to around ₹4-8 lakhs etc.

[9] Process of Setting Up A Private Trust

👉Trust deed has to be written on stamp paper worth the required amt.

👉Following has to be written on the deed:
🔸Name of the trust, address, type of trust etc
🔸Nature of Property
🔸2 trustees & settlor's name
🔸Charitable/religious

[10] Conditions For Paying Stamp Duty

🔸If you transfer property to a trust while still alive
👉Stamp duty must be paid
👉Transaction must be registered in accordance with the Indian Registration Act

🔸In case of transfer of property via Will, no stamp duty is to be paid

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TL; DR

[1] Private Trusts
[2] Types of Pvt Trusts
[3] Advantages of Irrevocable Trust
[4] How Are Assets Ring-Fenced
[5] Real Life Example
[6] Facts About Private Trusts
[7] Taxation of Irrevocable Trust
[8] Cost Involved
[9] Setting Up A Private Trust
[10] Paying Stamp Duty

Disclaimer: Shared for educational purpose. Not any tax or investment advice.

Please note that alimony is payable in two forms:
🔸As a %age of assets
🔸As a %age of income

You can read this news article which shares how a Delhi-based business family guy shrunk his assets by the time of separation. Source: ET -> economictimes.indiatimes.com/news/company/c…

However, please… twitter.com/i/web/status/1…