VI. Financial Matters
Upon ascertaining what assets or capital, including shares, saving schemes, and endowment policies, or an interest in a trust fund, are available in the ‘family pot’ for distribution, approximate values for each has to be attributed. Thus, it is important that value of each property has to be agreed between the parties, if not, it has to be decided by the Court.
Then, the Court has to consider whether it is fair or practical to leave the capital as it presently stands or whether some adjustment needs to be made. In deciding what adjustment to make, if any, the Court will consider all of the factors referred to below.
A. 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:
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
B. What factors will the Court consider in assessing the kind and the amount of maintenance (or alimony) to be made for a spouse?
In deciding who should pay alimony to whom, the Court is obliged to take into account the conduct of the parties and all the circumstances of the case. Those circumstances include the following, which are laid down in section 7 of the Matrimonial Proceedings and Property Ordinance (but they are not exhaustive):
1. The income, earning capacity, property, and other financial resources which each of the parties has or is likely to have in the foreseeable future
The Court will consider the overall financial position of each party both at the time of proceedings and in the ‘foreseeable future’, regardless of the sources or whereabouts of the assets or income. For instance, where one party has remarried or is about to remarry, the additional expense of running two households will be taken into account.
Full and frank disclosure of each party’s assets must be made to the Court. Should it be discovered that it was not done so, adverse inference could be drawn against the party failing to make full and frank disclosure.
The Court will take into account how the various assets of each party have been derived in order to make a fair decision.
Although property acquired before marriage or by inheritance had in many jurisdictions been accorded a class of its own, in the ordinary course, this factor can be expected to carry little weight, if any, in a case where the claimant’s financial needs cannot be met without recourse to this property.
Also, the Court will neither speculate nor base its decision on mere possibilities. The receipt of the asset or income must be reasonably certain and within the foreseeable future. This is particularly important when considering the relevance of potential inheritances (e.g. inheriting a family company or assets from a deceased or retired person).
2. The financial needs, obligations, and responsibilities which either of the parties has or is likely to have in the foreseeable future
Other than the financial resources now holding or to be received, the Court will also consider the outgoings, debts, and financial liabilities of each party. Parties should also give details of any financial obligations they have, including the expenditure on children and their school fees, regular allowance made to parents or other dependants.
3. The standard of living enjoyed by the family before the breakdown of the marriage
The lifestyle enjoyed by the parties during marriage will reflect on what their needs are. It is helpful to assess whether the financial claim is reasonable or not. For example, how to ensure that the standard of living of both parties will not be significantly declined after divorce?
However, in reality, it would be more expensive for a couple to live apart than to live together. It is therefore common that both parties will suffer a reduction in the standard of living upon marriage breakdown, unless the divorced couple is very well-off.
4. The age of each party and the duration of the marriage
These factors carry weight. Certainly, there will be vast difference in the award of maintenance between a short marriage where the wife is in her twenties; a short marriage where the wife is in her sixties; and a long marriage.
If the marriage is short, the husband’s obligations to maintain the wife will be relatively lower. Also, a young woman is expected to secure a job to support herself easier than a middle-aged woman, particularly if the latter has been out of the job market for a long time.
It is pertinent to note that the period of cohabitation before the marriage does not count towards the length of the marriage. The rationale behind is: the legal rights and obligations of the parties do no come into existence until the wedding ceremony has taken place. Therefore a long period of cohabitation followed by a short marriage will not be treated in the same way as a long marriage, albeit the parties have been in cohabitation for a long time.
However, each case has to be decided in accordance with its facts. The Court would take into account of all the circumstances of the case, which may regard the long period of cohabitation as a material circumstantial factor.
5. Any physical or metal disability of either of the parties
If one of the parties suffers from any kind of disability, whether physical or mental, this would certainly affect his / her ability to gain independence or to fend for himself or herself, This factor is relevant in assessing the ‘needs’ of the claimant.
6. 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
The Court will look at the contributions, financial or otherwise, that each party has made.
It is common that during marriage, on the one hand, the husband work hard, whether through employment or operating his own business, to earn money for the household, while the wife’s essential contribution was that of a caretaker of the home, a companion to her husband and as a mother. There is generally no bias in favour of the money earner and against the homemaker and child carer.
The Court recognizes the different, but complementary and equal, roles of husband and wife in the marriage partnership.
7. The value to either of the parties of any benefit which that party will lose as a result of the dissolution of the marriage
The Court will take into account any benefits that the parties will lose upon divorce. For instance, the loss of benefits under a former spouse’s medical insurance and/or life insurance, the loss of married person’s allowance, the loss of benefits used to receive from another party’s family trust, etc.
C. Can husband obtain maintenance from wife?
Yes, it makes no difference to the availability of financial relief for either party whether the petition for divorce or separation is filed by the husband or the wife. Although there is a common law presumption that the husband should maintain the wife, the law does not differentiate claims made by a wife against her husband and claims made by a husband against his wife. The same duty is imposed by statute (law) on a wife, if she does have the financial resources. However, in practice, a man may encounter a higher difficulty to claim financial support from his ex-wife.
D. What kind of maintenance order (or financially related order) is the Court empowered to make?
Maintenance pending suit
(while application for divorce is in process) – This order also called “interim maintenance”. As its name suggests, this order is for the provision of maintenance pending the grant of final divorce decree. This is because very often there would be an interim period or a time gap between the filing of petition for divorce and the court hearing and the grant of the final divorce decree. Such kind of order cannot last beyond the final divorce decree. It will terminate in any event upon the death of either party. This order is subject to variation and the amount so ordered to be paid is not necessarily any indication of the amount which may be order to be paid upon the granting of the decree.
Periodical payments order
This is an order for maintenance which is to be paid after the final decree. The Court is empowered to limit the duration of the maintenance to a specified time, subject to the needs of the payee (the receiving party) and the circumstances of each case. This kind of order will normally terminate upon the death of either party or the remarriage of the payee. However, the Court may limit the duration of the order to an earlier time. Also, if there is any subsequent change of circumstances on the part of either payee or payer, this order can be varied.
Secured periodical payments order
Secured periodical payments are ordered where there is reason to believe that the party ordered to make the payment will not pay them. As its name suggests, these are maintenance payments which are secured or guaranteed. However, it is pertinent to note that the secured provision is not to be a general charge on all assets. The Court is obliged to specify the assets on which security is to be given. The payments will continue until the death of the payee (not the payer, the party making payment), or the remarriage of payee, or an earlier date as specified by the Court. This order will only be imposed if there are reasonable grounds to believe that the common periodical payments order will be ineffective to carry out in practice and there are sufficient funds or assets of the payer whereby the payments can be secured e.g. where the payer has sufficient means but has a history of failing to abide by order so made (as in the interim maintenance order), poor record of financial irresponsibility, or has vowed to resist payment of maintenance if so ordered.
Lump Sum Order
It is an order for the payment of a capital sum in the case when the payee is entitled to one lump sum only. This order is closely related to the ‘clean break ‘ sought by a claimant. The capital sum payable under such order can be paid in various instalments. However, this order cannot be varied subsequently, because it is an ‘once and for all’ order that is intended to create finality in litigation. The amount paid out is not recoverable in any event.
Property Adjustment Order
It is an order whereby one party is ordered to transfer to another his or her interest in property such as real properties, stocks, or car, etc. This kind of order, once made, cannot be varied. Situations under which property adjustment order will be made is when, for example, there is a need to allow each spouse a share in the capital value of the family assets, especially the matrimonial home.
Settlement of property order
This is an order requiring one party to transfer specified property for it to be held on trust. The trustee(s) will hold the property for the benefit of the beneficiary, (usually either the other party or the child of the marriage) in accordance with the terms of a trust deed. This type of order is not common and factors such as the child’s welfare, the income, earning capacity, property and other financial resources which each parent has or likely to have in the foreseeable future will be taken into account.
Variation of settlement order
Where a trust (which is sometimes called a settlement) is already in existence, the Court can vary the terms of that trust or settlement. Again, such an order is not common.
E. What is “nominal maintenance”? Should I apply for such maintenance from my spouse in divorce proceedings?
In circumstances where a wife is not in need of any maintenance at the time of divorce but wishes to retain her rights to apply for the same in future, she can seek a nominal maintenance order. This might perhaps be a payment of HK$1 per annum which in practice is never actually made.
However, such order is subject to the possibility of variation subsequently. Husbands should be aware that by agreeing to pay nominal maintenance, there is a risk that they may find themselves having to pay a higher level of maintenance in the future. From a wife’s point of view, a nominal order will give her a sense of security as her maintenance claim is reserved rather than dismissed.
F. If there is a change of financial status for a spouse, will the maintenance order be subsequently adjusted or varied by the Court?
As periodic maintenance payments can last for a number of years, their level is open to variation if there is a subsequent change in the circumstances of either party such as the loss of employment or inflation.
The original order can be varied to reflect the change in circumstances.
Note that no clean break can be achieved with child’s maintenance, which can always be varied, according to the needs of the child. It is usually varied upwards as the child grows older and becomes more expensive to maintain.
Mr. A applied for a reduction in the payments he was making to his ex-wife because he had been made redundant and the only replacement job he could find had a considerably lower salary. The Court may accept that he could no longer afford to pay at the old rate.
Connie found two years after the award of financial maintenance that she could no longer manage on the maintenance she was receiving. Her former husband had received a pay rise and agreed that the payments should be increased. The original order may be varied to reflect such change of circumstances.
Sometimes parties would agree that maintenance should be increased annually by a certain percentage or in line with an established inflation measuring index. This can avoid making costly regular applications back to the Court.
However, note that not all kinds of court orders can be varied.
The following orders can be varied:
- Interim maintenance (Maintenance pending suit)
- Periodical payments
- The instalments by which a lump sum is payable
- An order for the sale of property.
The following orders cannot be varied:
- Lump sum orders
- Property adjustment orders
That is because these orders (lump sum orders & property adjustment orders) are ‘once and for all’ orders. They are intended to create finality in litigation so that the parties can put their antipathy behind and plan for the future without worrying about whether an order will be overturned.
G. If I got a large sum of money after the divorce (e.g. winning lottery or inherit a fortune from family), do I have to share with my ex-spouse from the maintenance?
This Question can be answered in two parts:-
1. Before the granting of maintenance order
The Court in assessing maintenance to be made for a divorced spouse is obliged to have regard not only to the financial resources and needs, obligations and responsibilities which the parties have at present, but also prospective assets which each of them is likely to have in the foreseeable future.
Prospective assets include, but not limited to, lump sum pension payable on retirement, capital sum due to be received under a settlement or which might be received on the dissolution of a partnership, gratuity payable on termination of contract etc. In many cases, the prospective asset consists not of something in which the party already has a vested or contingent interest but simply something which he or she is likely to inherit.
The issue is whether the asset is one which the party is likely to have in the foreseeable future. If it is, then the Court will have regard to it in considering whether to make a lump sum order, or whether to adjourn the application for further payment.
Thus, where the husband has reasonable prospect of receiving substantial assets, it may affect the amount of the lump sum which he is ordered to pay to the wife, or they may justify an order which provides the wife with capital or further capital on the happening of a future event or they may make it appropriate to adjourn her application until that event occurs.
Because of the Court’s duty to have regard to the foreseeable future, it is necessary to take into consideration not only existing liabilities but also those which are likely to be incurred in the foreseeable future.
Similarly, the prospective assets and liabilities of the wife have to be taken into account in the application for maintenance.
2. After the order of maintenance was granted
The Court has wide powers to vary or discharge certain orders (whether or not made by consent) or to temporarily suspend and revive any provision contained therein.
The Court has a wide discretion in variation proceedings. It can take into account increases in both the capital and income resources of the payer.
There is a recent UK Court of Appeal case ruling that when seeking variation of periodical payments, there is no need to show a change of circumstances, or an exceptional or material change of circumstances. As the Court has an absolute discretion, it can look at the case afresh, and need not regard the original order as the starting point.
However, when exercising its powers in variation proceedings, the Court must consider all the circumstances of the case, it must give first consideration to the welfare of any child of the family aged under 18, and any changes of circumstance including any change in any of the matters to which the Court was required to have regard when making the original order.
The Court will be vigilant to ensure that the variation application is not a disguised form of appeal.
H. What can the wife/husband do if the other party refused or failed to make maintenance payment?
You may consider the following ways to enforce the court order for maintenance against your spouse:
1. Judgment summons
You can apply for a judgment summons.
Under the judgment summons, your spouse is being summoned to Court to reveal his or her financial strength to settle the arrears. There should be no delay in pursuing for the outstanding amount as the court might refuse to enforce the Order of payment for those arrears due more than 12 months before proceedings to enforce the payment of them have begun.
The judge has the power to make a new order for payment of the amount due or to commit your spouse to prison (according to Rule 87 of the Matrimonial Causes Rules ) if he or she cannot justify his or her failure to pay. If your spouse fails to attend the hearing, the court will adjourn the case to a further hearing. If he or she still fails to attend on the adjourned hearing, the judge can commit him or her to prison in his or her absence.
Any committal to prison can be suspended on terms relating to the payment of the debt.
2. Attachment of income to satisfy order
(i) a court is satisfied that the payer has without reasonable excuse failed to make any payment which he is required to make by the maintenance order; or
(ii) a court is satisfied that there are reasonable grounds to believe that the payer will not make full and punctual payment in compliance with the maintenance order; or
(iii) the payer and designated payee agree to the making of an order under this section; and
there is any income capable of being attached payable to the payer,
the Court may order the income to be attached as to the whole or part of the amount payable under the maintenance order and the amount attached to be paid directly from the payer’s sources of income (e.g. his/her employer) to the specified payee. However, the payer could retain certain amount for his/her reasonable living expenses before such deduction.
3. Prohibition order
It is possible to apply to the Court on an ex-parte basis (applied unilaterally by one of the parties only) for an order that your spouse be prevented from leaving Hong Kong pending recovery of the debt.
If granted, the order is served on the Director of Immigration and your spouse will not be allowed to depart if he or she attempts to leave Hong Kong.
This procedure can be very effective in particular when your spouse travels frequently as it is likely to cause your spouse considerable inconvenience. However, you should bear in mind that the Court is reluctant to limit a person’s liberty in this way. Therefore such an application should only be made as a last resort only when every other method of enforcement has been exhausted and proved inappropriate.