The first casualty of a bitter divorce settlement is often the factor that binds a marriage: trust. The lack of it often complicates matters further, particularly when it comes to alimony and securing future of children.
The spouse who does not have the custody but has to commit money for children’s care as part of the settlement is bound to be concerned about the possible misuse of funds. While courts take into consideration various factors before outlining nitty-gritty, on their part, warring couples can look at creating a private trust to govern how the money will be deployed.
“Formation of a private trust has largely helped in addressing these concerns where a certain sum of money is transferred to a trust and earmarked for health, education, maintenance, marriage etc. of children. These are limited purpose trusts which come to an end when the child reaches a pre-defined age of 30, 35 and so on,” says Amit Pathak, MD, Warmond Trustees and Executors. Such trusts are governed by the Indian Trusts Act, 1882 and there is no need for a court sanction to settle a private trust. Since an independent professional trustee is usually appointed to administer such trusts, it helps bridge the trust deficit between the divorced couple.
While Trusts can bring relief to all three parties involved – estranged spouses and children – the drafting of the trust deed is key to preventing disputes in future. “It is the documentation of the trust deed that really drives the execution of such a Trust. The settlor can define a framework and give guidelines within which the trustee could operate,” explains Pathak. For instance, they can specify monthly or quarterly expenses to be paid for the maintenance and education of the children. “Letter of Wishes, which is a document accompanying the Trust deed, comes handy for giving advice to the trustee, such as for distribution at the time of particular life events,” he adds.
A Trust can ensure that the money can be disbursed for specific requirements and goals, as defined by the parents, making it a reliable tool to protect children’s short-term needs and long-term interests. “In most cases of divorce, children may either be minors or young adults. These children may be majors in a strict legal sense but may not be mature enough to handle wealth all at once. A Trust can ensure that they receive the support required in multiple tranches at various stages of their lives,” says Pathak.