INDIA Trends and Developments Contributed by: Tanmay Patnaik, Raj Chheda and Eisha Singh, Trilegal
The Delhi High Court found prima facie suspicious cir - cumstances: the unnatural disinheritance of all Class I heirs except the propounder of the Will, ie, the second wife, the delay in the Will’s emergence, the interested nature of the attesting witnesses, and clerical errors, including the use of the words “Testatrix” and “her” in a document purportedly made by a man. It held that the onus to dispel such doubts fell on the propounder of the Will. The Supreme Court has since referred the trust dispute to mediation, and the matter remains ongoing. Not every family ends up in a courtroom. Where rela - tionships and communication remain intact, families are turning to negotiated settlements as a first resort rather than a last one. Family Settlement Agreements (FSAs) are seeing a marked rise, especially across mid-market and MSME-owned businesses, providing a contractual framework to record an agreed division of family assets, business interests and management control as an alternative to litigation. Indian courts have consistently upheld FSAs as fully enforceable where entered voluntarily with full disclosure. Trans - actions implemented under a bona fide FSA can, if appropriately structured, generally be achieved tax- neutrally. For promoter-driven MSMEs, where owner - ship and management are deeply intertwined, FSAs are emerging as a pragmatic tool to preserve business continuity while resolving intra-family disputes. Grey divorces , blended families and the financial consequences of marital breakdown The private wealth consequences of marital break - down are becoming increasingly complex. Indian courts have moved from a bare-subsistence approach to maintenance towards a lifestyle-parity standard, aimed at ensuring a separated spouse is not left mate - rially worse off than during the marriage. In assess - ing quantum, courts examine the paying spouse’s “free income”, recognising statutory deductions like income tax and provident fund contributions, while generally disregarding voluntary outgoings like EMIs or insurance premiums. There is no rigid formula, but the Supreme Court, in Kalyan Dey Chowdhury v Rita Dey Chowdhury , observed that around 25% of the net salary may serve as a broad benchmark.
Courts have also clearly distinguished between earn - ing capacity and actual income. A spouse is not dis - qualified from claiming maintenance simply by virtue of education or employability, and even where inde - pendent income exists, the question is whether it is sufficient to maintain the standard of living enjoyed in the matrimonial home. For high-net-worth families, the stakes of marital breakdown are considerably higher. The Supreme Court’s observation in Rajnesh v Neha that courts must consider whether a spouse sacrificed employ - ment opportunities for family and child-rearing – the “career penalty” – has particular resonance where one spouse has stepped back from professional life to support the family or business. In those cases, the maintenance or alimony claim can be substantial, and the asset disclosure process may expose the full com - plexity of the family’s wealth structure to judicial, and sometimes public, scrutiny. The rise of “grey divorces” – separations among couples in their fifties and beyond – adds a further dimension: wealth accumulated over decades, with intertwined family business and personal estates. Pre- nuptial agreements, while still not legally recognised in India, are being used as memoranda of understanding that courts may consider. Post-nuptial arrangements have received greater judicial receptivity, being less often viewed as undermining the institution of marriage at its inception. Private trusts and family arrangements are also being deployed as structural alternatives to ring-fence assets against future marital claims. The state as a participant: regulatory scrutiny and the limits of ownership opacity Tax authorities and the substance test Indian tax authorities are applying an increasingly strict “substance over form” lens to private wealth structures, focusing on the scope of powers embed - ded in governing documents. In Buckeye Trust v PCIT (Bengaluru Tribunal), the set - tlement of assets into the trust was subject to deemed gift tax provisions because the deed empowered trus - tees to include any person or charity (ie, a non-relative of the settlor) as a beneficiary, even though no such inclusion had actually occurred. A subsequent clar -
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