1. How would the Court deal with or divide the matrimonial properties between the husband & wife upon divorce?

1. How would the Court deal with or divide the matrimonial properties between the husband & wife upon divorce?

There are some general principles regarding the division of properties between the parties upon divorce:

a. Ownership of property

Disputes about bank accounts can arise in respect of ownership of the funds and property purchased with the funds derived therein.

If a bank account is in a spouse's name, then it appears that any money in the account belongs to that person, unless there is a contrary intention or another spouse has made a contribution to the fund.

If a bank account is held in joint names, then it appears that any money in the account belongs to both parties jointly, unless there is a contrary intention, e.g. that the account was put into joint names for convenience.

As a general rule, any property acquired with the funds from a bank account belongs to the purchaser.

Thus, if a husband draws money from a joint account to purchase shares or real property in his sole name, then it appears that these properties belong to him. But if the parties have pooled their resources together, the Court may treat the joint account as a 'common pool' and held that investments purchased by the husband with money from the joint account belonged to both husband and wife in equal shares, albeit the husband had made larger contributions to the joint account than the wife.

b. A roof over each party's head

The Court will ensure that, wherever possible, there is a roof over each party's head. This is in particular so when there are children in the family. The Court will ensure that the children are properly taken care of by providing them a secure home.

c. Percentage of the total capital available

Hong Kong Court used to assess the 'reasonable requirements' of the spouses and divided the assets accordingly. Leftover assets have very often been awarded to the breadwinner, usually the husband.

However, the Court of Final Appeal of Hong Kong had ruled in LKW v DD (2010) 13 HKCFAR 537 that a wife is entitled to half of the couple's assets when they divorce in Hong Kong.

This 50/50 rule will have major impact in cases where the financial assets are substantial. As a consequence, pre- and post-nuptial agreements will be extremely important for those in Hong Kong who wish to protect his/her personal wealth.

d. Maintenance or "Clean Break"

Apart from the share of joint capital, a wife may also be entitled to periodic maintenance. It is the court's duty to consider whether a "clean break" (i.e. to terminate the financial dependency of one party against another party) is appropriate on each case.

"Clean break" refers to the distribution of property and/or payment of one lump sum (in one go or by instalments) once and for all, so that the parties can put behind their unhappiness behind and start afresh without having to be reminded of the grievances of the breakdown of marriage or going through the burden of litigation again (e.g. to enforce for the arrears of periodical payments).

The rationale for making a lump sum order is to meet the wife’s reasonable requirements, and to recognize her contribution as a mother to the children and/or wife to the marriage. If she has actively participated in the family business or provided finance to the business, the lump sum award will be increased over and above her reasonable requirements so as to recognize the fact that she has ‘earned’ a share in the family assets.

However, no lump sum order will be made unless the respondent has capital assets out of which to pay it without crippling his earning power.

Is "clean break" possible?

Subject to the financial strength of the party being asked to provide maintenance (usually the husband), if there is a great antipathy and tension between the parties, the Court will usually strive to achieve a clean break if possible.

The amount of the lump sum required to achieve a 'clean break' varies from case to case. It is closely linked to the level and duration of maintenance that the applicant (usually the wife) could otherwise expect. The lump sum should cover the applicant's financial needs for that period.

If necessary, accountants can come up with a figure that takes the various factors into account, including the life span of a party, the predicted rates of interest and inflation. But such exercise is very costly and should only be taken if they are helpful and provide material assistance to the Court. Unnecessary use of accountants or experts is highly discouraged and would increase costs.

Considerations for the husband

A husband's liability to pay maintenance to his divorced wife ceases upon her remarriage.

Thus, if it is likely that his divorced wife will remarry in the near future, it will not be in his interests to pay a large capital (cash and/or real estate) to achieve a clean break. This is because such capital is not repayable upon her remarriage.

On the other hand, he should not forget that clean break, if achieved, would terminate his divorced wife's financial dependency on him. The husband can then put all the shadow and unhappiness of the marriage behind him and start a new life.

Considerations for the wife

As to the wife in a clean break situation, it is beneficial to her because she has financial independence. She is in possession of the capital sum and has the flexibility to use the money as she wishes. She does not have to go through the burden of litigation again (e.g. to enforce for the arrears of periodical payments; any possible application by her husband to vary the level of maintenance downwards by reason of his own change of circumstances).

The downside of having a clean break is that the lump sum is awarded on an once and for all situation. If the capital turns out to be insufficient to meet her needs or she fails to budget or invest it wisely, there is no point of return. She could not go back to Court and claim against her husband again. This holds true even if her divorced husband becomes rich after the divorce.

e. Ownership of a business

If a husband derives his income mostly from his own business which has a capital value, dispute can arise as to the valuation of the business.

If the business has its own premises or worthy possessions (real estate, cash, stocks, equipment etc), then valuations of these assets can be obtained by appointing a qualified person (e.g. accountants) to do so. If the business is not going to be sold either now or in the near future, its main value is the income which it would generate. This is in particular so if the husband is going to pay periodic maintenance to the wife and/or children, who will benefit from the continuity of the business, which would generate regular incomes.

The reason why disputes can arise between the parties is because business valuations provided by accountants instructed on behalf of each party are often very different, as different accounting approaches may be used.

In practice, the accountant appointed by the husband would usually adopt an approach that would result in a relatively low capital value of the business while the wife's accountant would tend to take an approach that would reflect the 'true picture' of the business worth. If the accountants cannot agree on a valuation, they may have to be called to give evidence at the hearing. This is likely to be rather costly.