You Don’t Trust Your Ex With the Money. Here’s How to Protect Your Child’s Inheritance.

You’ve already handled the divorce paperwork. Updated your nominees. Rewritten your will. Separated the accounts. You’re done, right?

Not quite. Because there’s a default hiding inside Indian law that most divorced parents never find out about until it’s too late.

The Default Nobody Tells You About

If you die while your children are minors, your ex-spouse steps in as their natural guardian. Under Section 6 of the Hindu Minority and Guardianship Act, 1956, the father is the natural guardian of a minor child, and after the father, the mother. If you’re the mother and you die, the father becomes the guardian. If you’re the father and you die, the mother takes over.

Divorce doesn’t change this. Your ex-spouse losing custody doesn’t change this. The only thing that changes it is a court formally terminating parental rights, which almost never happens in India.

So when your insurance company pays out ₹1 crore to your 10-year-old child, who collects the money? Your ex-spouse. When your mutual fund corpus matures and the nominee is a minor, who receives it on their behalf? Your ex-spouse. As the surviving natural guardian, they have the legal authority to manage every financial asset your child inherits.

That’s the default. Everything below is about changing it.

Why Nomination Alone Doesn’t Help

You might think naming your child as the nominee solves the problem. It doesn’t. A nominee is a caretaker, not an owner. And when the nominee is a minor, they can’t receive money directly. Someone else must collect it for them.

For insurance, that someone is the appointee you designate under Section 39 of the Insurance Act, 1938. For mutual funds, SEBI requires a similar appointee designation when the nominee is under 18. For bank accounts, the surviving guardian operates the account.

If you haven’t named an appointee, or if you named one who is no longer appropriate (say, your ex-spouse from before the divorce), the system falls back to the natural guardian. And the natural guardian is your ex.

Nomination tells the institution who should receive the money. It doesn’t tell them who should manage it wisely. And it certainly doesn’t prevent your ex-spouse from stepping in as the default authority.

The MWP Act: Locking Money Away From Everyone Except Your Child

The Married Women’s Property Act, 1874 does something unusual. It puts insurance proceeds behind a legal wall that your ex can’t reach. Neither can creditors. Neither can a court.

Under Section 6 of the MWP Act, when you buy a life insurance policy and express it to be for the benefit of your wife, children, or both, the policy proceeds go into an irrevocable trust. This trust exists from the moment the policy is issued. It cannot be revoked. The beneficiaries cannot be changed.

For divorced parents, here’s the move: Buy a new term insurance policy after your divorce, structured under the MWP Act, with only your children as beneficiaries. Don’t include your ex-spouse. The proceeds from this policy will flow into a trust managed by a trustee you choose. Your ex-spouse has zero claim on these funds, even as the children’s natural guardian.

The trustee you name on the MWP policy is the person who controls the money. Pick them carefully. It should be someone you trust with your children’s financial future: a sibling, a parent, a close friend who’s financially responsible. Not your ex.

One catch: if you bought an MWP policy during your marriage and named your then-spouse as beneficiary, those beneficiaries are locked. You can’t remove your ex from that policy. The solution is to buy a new one.

A Private Trust: Beyond Insurance

The MWP Act only covers life insurance. What about your mutual funds, fixed deposits, property, gold, PPF?

For everything else, you need a private trust under the Indian Trusts Act, 1882. A private trust lets you transfer assets into a separate legal structure with rules you define.

A trust gives you control that direct inheritance doesn’t. You choose the trustee, not the law. You set the release schedule: maybe 25% at 18 for college, another 25% at 25, the rest at 30. An 18-year-old doesn’t get ₹50 lakh with no guidance. You restrict usage to education, medical needs, and basic living. And because the trust deed is a legal document, beneficiaries can take action if the trustee violates its terms.

The part that matters most: under Section 78 of the Indian Trusts Act, a trust can only be revoked with the consent of all beneficiaries who are competent to contract. When your beneficiaries are minor children, they can’t consent. A principal civil court must approve any revocation on their behalf. In practice, no court will dissolve a trust that’s protecting children’s inheritance.

Your ex-spouse can’t touch it. Neither can their new family, if they remarry. The trust stays intact while your children are minors.

Testamentary Guardian: What a Will Can and Can’t Do

Many divorced parents believe they can name a “guardian” in their will and that person will override the surviving parent. That’s not how it works.

Under the Hindu Minority and Guardianship Act, a testamentary guardian appointed by will only takes effect if the surviving natural parent is no longer alive. If your ex-spouse is alive, they remain the natural guardian of the child’s person. Your will cannot override that.

What your will can do is separate roles. You can specify:

• Physical custody stays with whoever the court determines is fit (usually the surviving parent)
• Financial management goes to a trustee you’ve named in your trust deed or will

That separation is where the protection lives. You’re not fighting over who raises the child. You’re making sure the person who raises them doesn’t automatically control the money. The financial guardian and the custodial parent can be different people.

Name the financial trustee in your will. Create the trust deed as a separate document. The two work together: the will directs your assets into the trust, and the trust deed governs how those assets are managed.

Appointee Rules: Every Account, Every Policy

This is the tedious part, but it matters. Every financial account where your child is the nominee needs a designated appointee or guardian, and it needs to be someone you’ve actively chosen.

Life insurance (IRDAI rules): Under Section 39 of the Insurance Act, 1938, you must appoint an appointee when the nominee is a minor. The appointee collects the claim and holds it for the child. You can change the appointee at any time by endorsement on the policy.

Mutual funds (SEBI rules): SEBI allows up to 10 nominees per folio. For minor nominees, you must designate an appointee with date of birth and relationship details. Under SEBI’s revised nomination framework effective 2025, the process is more structured but the core requirement remains: minor nominees need adult appointees.

Bank accounts (RBI rules): For accounts where a minor is nominee, the surviving guardian typically operates the account. Consider structuring your child’s savings in a way that doesn’t default to your ex. A trust account achieves this.

EPF/PPF: Minor nominees need a guardian on the nomination form (Form 2 for EPF). Review these nominations with your employer and at the post office. Make sure the guardian listed is someone you’ve chosen, not a leftover from your marriage.

Go through every account. One by one. Update every appointee. Don’t leave a single one defaulting to your ex-spouse. This is the kind of work that takes an afternoon but prevents months of legal battles.

What If Your Ex Challenges It?

This is the fear that stops most divorced parents from acting. What if I set up a trust, name my own trustee, and my ex takes it to court?

The short answer: trust assets are outside the guardian’s reach.

Under the Guardians and Wards Act, 1890, a guardian’s powers over the ward’s property are defined in Sections 27-30. But these powers apply to the ward’s “property” in the general sense. Assets held in a properly constituted trust don’t belong to the ward. They belong to the trust, managed by the trustee, for the benefit of the ward. The guardian can’t claim management rights over trust assets because they aren’t the ward’s personal property.

Section 29 of the GWA restricts court-appointed guardians from selling, mortgaging, or leasing the ward’s immovable property without court permission. But this section governs the ward’s property, not trust property. Your trust sits outside this framework entirely.

Could your ex petition the court to be appointed as trustee? Theoretically, yes. But courts evaluate trustee appointments based on the welfare of the beneficiary and the intentions of the trust’s creator. If you’ve named a competent trustee and documented your reasons, a court is unlikely to replace them with your ex-spouse, especially when the entire purpose of the trust is to keep management separate from the other parent.

The stronger your documentation, the harder it is to challenge. Write down why you chose the trustee you chose. Include this reasoning in the trust deed itself.

Your Protection Checklist

Here’s what needs to happen, roughly in this order:

Week 1: Insurance

• Buy a new term insurance policy under the MWP Act with only children as beneficiaries
• Name a trustee on the MWP policy who isn’t your ex-spouse
• Review old MWP policies (they can’t be changed, but you can supplement with new ones)

Week 2: Trust

• Set up a private trust with a lawyer experienced in estate planning
• Name a trustee you trust, include staggered release schedules
• Transfer non-insurance assets (MFs, FDs, property) into the trust or name the trust as beneficiary

Week 3: Will and nominations

• Rewrite your will to direct all unstructured assets into the trust
• Register the will for additional legal weight
• Update nominees and appointees on every account: insurance, MFs, bank, EPF, PPF

Week 4: Documentation

• Compile everything into one location: trust deed, will, policy documents, account details
• Brief the trustee on their responsibilities and the location of all documents
• Store copies with a trusted family member and with your lawyer
• Make sure the people you’ve chosen know what they need to do

None of this is about punishing your ex. It’s about making sure the money you leave behind ends up managed by someone you chose, under terms you wrote, for your children. That’s it.

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Disclaimer: This article is for informational and educational purposes only. It does not constitute legal, financial, or tax advice. Laws referenced include the Married Women’s Property Act 1874 (Section 6), Indian Trusts Act 1882 (Section 78), Hindu Minority and Guardianship Act 1956 (Section 6), Guardians and Wards Act 1890 (Sections 7, 17, 27-30), Insurance Act 1938 (Section 39), Hindu Succession Act 1956, and SEBI/RBI nominee regulations. These laws are subject to change and interpretation varies by court and circumstance. Consult a qualified legal or financial professional for advice specific to your situation. Anshin is not a financial advisory service.