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V. Division of Assets following a Divorce

When a husband and wife decide to divorce, what follows is the division of matrimonial property. However, it does not necessarily follow that the division is in accordance with their respective contribution towards the purchase price of the property.

Section 7 of the Matrimonial Proceedings and Property Ordinance , Cap.192 (“MPPO”) sets out what the court must do when deciding how the matrimonial property is to be divided:

“1. It shall be the duty of the court in deciding whether to exercise its powers under section 4 , 6 or 6A in relation to a party to the marriage and, if so, in what manner, to have regard to the conduct of the parties and all the circumstances of the case including the following matters, that is to say –

  • the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;
  • the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;
  • the standard of living enjoyed by the family before the breakdown of the marriage;
  • the age of each party to the marriage and the duration of the marriage;
  • any physical or mental disability of either of the parties to the marriage;
  • the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

in the case of proceedings for divorce or nullity of marriage, the value to either of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage that party will lose the chance of acquiring.”

Section 7(1) is based on section 25(1) of the Matrimonial Causes Act 1973 and section 3 of the Matrimonial and Family Proceedings Act 1984 of the United Kingdom.

Since the House of Lords’ landmark decision in White v White [2001] and the subsequent decision in Miller v Miller and McFarlane v McFarlane [2006], the task of the Court has been to make fair financial arrangements on or after divorce in the absence of agreement between the former spouses.

A non-financial contribution to the welfare of the family is regarded as an important factor. The equal status of husband and wife in a matrimonial union is also to be reflected in the division of assets. The starting point is a more or less equal division of the available assets.

The Hong Kong Court of Appeal in DD v LKW sets out the relevant principles:

‘In the majority of the cases where the parties only have limited financial resources, the focus of the inquiry on fairness is to divide the assets of the parties so as to make provision for their housing and financial needs. It may be necessary to augment the available assets by making orders for periodical payments.

Where there are assets which are available beyond satisfying the immediate housing and financial needs, equality in the division of the assets should be made unless there is a good reason to the contrary. This approach is not confined to ‘big money cases’ but to all cases where assets are available beyond what is required to satisfy the needs of the parties.

The inquiry should be conducted in two stages :

First, there should be a computation of the available assets of the parties, such as property, income (including earning capacity), and any other financial resources which the parties have or are likely to have in the foreseeable future.

Second, the assets should be distributed according to the three principles of need (generously interpreted), compensation and sharing. These principles can be gleaned from section 7(1) , and each of the matters set out in section 7(1)(a)–(g) can be assigned to one or another of the three principles.’

In W v H , the Court of Appeal suggested flexibility in the exercise of the court’s discretion:

' … I consider that there are grave difficulties in accepting that the Hong Kong courts are bound by the decisions of English courts. Naturally, decisions of the House of Lords are to be given respect. But since the resumption of sovereignty in 1997, it would appear difficult to suggest that decisions, even of the House of Lords, could be considered as binding.'

‘I consider it unnecessary to examine what was said in all the cases, but the provisions of the Ordinance mandate a flexibility in the exercise of discretion which in each case is necessary to meet the circumstances of the case. The English decisions have shown a progression towards the realisation that fairness often dictates that, on dissolution of the marriage, the family assets should, in principle, be shared between the parties unless there was good reason to depart from such a distribution. Nevertheless, each case must be decided on its own facts and its own merits. In cases of divorce, the facts and circumstances relating to the parties and the marriage can and do vary significantly. In my view it would be dangerous to attempt to decree a principle that is applicable in all cases.’

The ultimate goal is to achieve fairness in the distribution of the couple’s assets, not necessarily a strict 50/50 division.

Complications arise when the purchase price of the matrimonial property was funded (in whole or in part) by a third party. In that case, the third party may have a claim on the property for his or her contribution.

For example, if the matrimonial home was purchased at, say, HK$3 million, and the husband and the wife each contributed $1 million, with the remaining HK$1 million contributed by a brother of the husband, then the brother could have a 1/3 interest in the value of the matrimonial home at the time of the divorce, and that 1/3 would not form part of the pool of matrimonial property to be divided between the husband and wife.

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