32-year-old Vasundhara Singh, a software engineer based in Delhi, (name changed) was so accustomed to the comfort that came from knowing that her husband was deftly managing the family’s finances that when she initiated her divorce proceedings, sorting out the finances became the hardest part of the ordeal. “I had two young children to fend for and while I had a steady source of income, the knots seemed impossible to untangle on the financial front. Add to that the fact that in India, a divorce is always seen as a problem rather than a solution to the problem owing to the stigma surrounding it, especially for divorced women. It was hard to be able to think clearly and ensure my finances were in order,” narrates Singh.
Divorces can have long lasting impacts on the finances of those involved and considering that the events leading up to separation and the event itself can be excruciatingly painful, managing financial matters in a vulnerable state of mind can be tricky. In India where age-old gender norms have either kept women away from being financially independent or from participating in financial decision-making at the family level, starting afresh with adequate monetary resources after navigating a divorce can be a herculean task.
“A separation requires you to start everything from scratch on the financial front, especially if you have not been involved in managing your finances or if you have been stuck in an abusive relationship where your partner may have kept you away from having funds in your control. For instance, after I got divorced, I realised I was dependent on my husband for my health insurance needs and that after a legal separation; I was disqualified from being a beneficiary of the family health insurance policy. I bought a health insurance policy afresh, added a critical illness cover and made my kids the beneficiaries in my new life insurance policy,” says Sinha.
The process of resetting your finances can be extremely cumbersome and an example of that can be the fact that one has to change the nominations in all the investments. “My financial advisor told me that I had to change my nominations in the employee provident fund too. It is easy to miss these details when you are probably going through the most turbulent phase in your personal life. My experience taught me that for women who can afford it, it is best to hire a financial advisor rather than going about it on your own when your decision-making skills may not be at their finest,” Sinha suggests.
Healing yourself mentally after a divorce can be time-consuming and chances are it is not going to be a linear trajectory. In the midst of emotional upheaval, it may be tempting to seek relief by spending money on activities that you like or that give you joy. However, it is important to tread very carefully as it could become a major cause for concern later on. Sinha emphasizes that channelizing of money in any way – be it for a small indulgence or for investments should be done with extra deliberation right after a divorce. “I remember putting my alimony money in liquid debt funds for a few months – so that I did not end up spending it unnecessarily or investing it in unsuitable asset classes in the spur of the moment. This helped me buy time to recover from the blow and lent me clarity as to the best ways to put that money to use. The returns generated by the funds also turned out to be of major help,” she states.
For women with children, maintaining good financial health can be a tad bit more complicated after a divorce. Sinha says, “The biggest mistake would be to become complacent after having received your alimony. It is imperative to start saving and investing for their education and preparing a solid financial reservoir as soon as you can after the divorce has been formalized. Yes, maintenance would be determined by courts but it is unwise to depend on your ex-husband for your child’s maintenance. My financial advisor had recommended investing in child plans as well as equity mutual funds for my children’s needs.”
Preeti Zende of Apna Dhan Financial Services states that retirement planning too may need to be revised after a divorce. “Your financial plans for retirement may also need to be re-analysed after a divorce because your financial capabilities, risk appetite may have undergone a shift. Starting SIPs in index funds and flexicap funds for equity allocation and maintaining PPFs and/or investments in small savings schemes like the Sukanya Samriddhi Yojana (for those with daughters) can be great starting points. For short term goals, liquid and ultra-short term debt funds should suffice,” she recommends.
– A divorce may take a toll on your mental and eventually your physical health too. Don’t hesitate to seek professional help if you are struggling to cope up.
– If you do not have an emergency fund, start putting money aside for one that can cover for your and your children’s basic needs and expenses for six months in the event of any unforeseen circumstances.
– Starting SIPs in index funds and flexicap funds for equity allocation and maintaining PPFs and/or investments in small savings schemes like the Sukanya Samriddhi Yojana (for those with daughters) can be great starting points. For short term goals, liquid and ultra-short term debt funds should suffice.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.