In Wealth We Trust

Earlier this year, India’s best-known textile brand Raymond seemed to be standing at a new juncture in its nearly 100-year legacy. The company had been in the doldrums till just a few years ago. Its retail textile businesses had been floundering for some time, and the pandemic had put a further spanner. Gautam Singhania, its flamboyant chairman and managing director who is seen as often on a newspaper’s business pages as its entertainment supplements, was also beset with personal issues. The spat with his father, the Raymond Group’s founder Vijaypath Singhania who had handed over the company’s reins to his son in 2015, was constantly spilling out of courtrooms and into the newspapers.

But all that seemed to be fading into the background this year. Raymondʼs revenue grew 31 per cent in the financial year 2022-23 over the previous year to Rs 8,337 crore. The value of its stocks jumped many times over. It was trading at Rs 2075.80 on September 8, for instance, compared to Rs 321.50 on April 30, 2021. Much of this growth had come through a pivot towards its real estate business, as the firm looked to utilise its substantial factory land in Thane, the district neighbouring Mumbai.

This optimism has now melted away, as yet another acrimonious spat in the Singhania household, this time between Singhania and his wife Nawaz Modi, has spilled into public view. The Raymond scion announced his separation from Modi, even as she, accusing Singhania of domestic violence, demanded a hefty sum as a settlement. According to reports, Modi has asked for 75 per cent of Singhania’s estimated $1.4 billion fortune as part of the settlement. The news spooked shareholders, and the value of the company’s stock nosedived for 12 straight days.

While the spat between the two appears to be particularly acrimonious, the issue of marital discords affecting the fortunes of a company is becoming much more common than in the past. “In the past, disputes [over wealth in a family] used to be often between siblings,” says Sameer Tapia, the founder and senior partner of ALMT Legal. “That’s not how it is today,” he says, referring to disputes over wealth that often emerge after divorces.

The structure of business families in India has changed from the past. Joint families where a powerful patriarch held sway are now giving way to nuclear families. And among the young scions of these families, experts and consultants in family estate laws say, divorces are becoming increasingly common. “There is a lot of social freedom in urban India now. Unlike the past when marriages were carefully arranged, even among the rich, you can marry anyone now, someone you met in school or college, or even at a party. Similarly, divorces, which used to be rare before, are getting much more common,” a lawyer who advises business families says.

Divorces are rarely amicable. But in the world of the rich, where a spouse can be entitled to massive settlements, divorces become even more complex. Concerns over the fragility of marriages among the young are now leading many business families to explore various structures to protect family wealth. An increasingly popular method, they say, is the creation of a family trust where a family can safely park their estate, thereby protecting it from claims made by an estranged spouse. “The intent of the trust can be to ringfence a set of assets,” says Sunil Shah, the founder and director of Evergreen Family Business Advisors. “If a [estranged] wife makes, say, a 75 per cent claim of the assets owned by the husband, but if the assets owned by the husband is Rs 5, and not Rs 100, which has been parked in a trust, then the wife’s claim becomes just 75 per cent over the Rs 5 held by the husband.”

In most cases, experts say, when a marriage falls apart, the needs of the estranged spouse are taken care of. But families do not want their estate or shareholding to get into the hands of an outsider. So, a watertight trust, where the children from such a broken marriage will eventually inherit the wealth, and not the estranged mother or father, is becoming the preferred option. What can go into such a trust? Everything from movable assets like cash, jewellery, and vehicles to immovable assets can be included in a trust.

“Increasingly, many estranged couples are opting for creating trusts to handle a separation,” says Mridula Kadam, a leading matrimonial lawyer in Mumbai. “You can set up a trust with very clear terms and timelines for when funds are to be disbursed, say for a child when he or she turns 18 years old for higher education, or when he or she is set to get married. You can safeguard your children from potential instability this way.”

A few years ago, Kadam handled the divorce of a banker and his wife. This was the banker’s second divorce, and the wife’s concern revolved around whether he would remain financially committed to their daughter’s care. “He was very committed to it. He was even willing to take an undertaking saying so,” Kadam says. Eventually, the banker agreed to form a trust with the daughter as a beneficiary. “We put in a lot of conditions—like how much money would be disbursed when the daughter would turn 12, then 18 for higher education.”

The concept of trust has been around for some time. But many business families are now increasingly looking at this to safeguard their wealth. One of the reasons behind this, Shah says, is because the concept of prenuptial agreements, popular in the West, has no legal recognition here. “Many people still get into prenups here. But it is seen more as a morally binding document than a legally enforceable document in India,” Shah says.

In the Singhania case, too, according to reports, the Raymond scion has proposed the establishment of a trust. This reportedly came after Modi floated her demand of 75 per cent of Singhania’s wealth for herself and her two daughters as a settlement. In Singhania’s proposal, according to reports, a trust where he would be its sole trustee could be established, with the daughters being able to inherit the funds after his demise. Legal representatives of the two sides are now in negotiations and, according to reports, both parties are now working towards a “more realistic settlement” compared to Modi’s initial demand for a 75 per cent share of Singhania’s wealth.

In several instances now, Shah points out, trusts are formed before a marriage. “It is logical to do it before the marriage,” he says. Shah is currently preparing a trust for the daughter of a well-to-do family who is set to get married in a month. The purpose, he says, is that even if the marriage comes apart in the future, her interests will remain protected.

This is another facet of the trusts being established. While many business families create trusts to protect the family estate from an estranged wife’s claims, according to Tapia, business families are also creating trusts for their daughters. “The interests of the daughter are protected this way. And in case of a divorce, the husband does not have a claim over those assets [in the trust],” Tapia says.

A few years ago, Kadam was involved in handling the divorce of a builder and his wife. “Although he assured that he would take care of the needs of his children, because there is so much insecurity in the [real estate] business, and he had multiple projects going on at the same time, the wife wasn’t very comfortable,” she says. There was another complication. The wife came from a wealthy background herself, and the husband worried that she might absolve herself from financially caring for the daughter in the future. “He said, ‘What if you marry someone else, and have children [with him]?’” Kadam says. “So, we created a trust, where both the husband and wife’s assets were lodged, with the children as beneficiaries.”

About The Author

Lhendup G Bhutia

•