Financial Disputes in Divorce Proceedings

Financial Disputes in Divorce Proceedings 1200 800 Hugill & Ip
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the HIP answers

Financial Disputes in Divorce Proceedings

Divorce is emotionally one of the toughest challenges most people will ever face, however separating from a spouse is not only difficult on the mental wellbeing, it can ignite a series of financial issues that might be detrimental and long-lasting.

Q1. What are the first considerations to make?

The most important financial considerations are based on how to split assets. In many circumstances not understanding the real consequences of a financial settlement until after a divorce is finalized can be extremely painful or even devastating.

It is crucial to have a clear focus on both the emotional and the financial situation and try to get control over your life, which in turn can reduce stress levels or mental health implications.

Q2. How does the Court initially assess the financial situation and spouses’ needs?

The financial situation can be divided in different categories: assets, liabilities, income and expenses.

According to the Matrimonial Proceedings and Property Ordinance, Cap. 192 (“MPPO”) the Court must have regard to the conduct of the parties and all the circumstances of the case including the following: the income, earning capacity, property and other financial resources; financial needs, obligations and responsibilities – both current and for the foreseeable future; standard of living; age of the spouses and duration of the marriage; any physical or mental disability; contributions made by each of the parties to the welfare of the family; value to either spouse of any benefit which that party will lose the chance of acquiring because of divorce.

Q3. How does the Court identify the matrimonial pot?

Before the Court could proceed to divide the parties’ assets, the first step is to ascertain the net financial resources of each spouse. As highlighted earlier on, the Court would consider the income, earning capacity, property and other financial resources which each spouse has or is likely to have in the foreseeable future.

The parties are required to complete a comprehensive financial disclosure form known as “Form E” after ancillary relief claims are made. Following that, if necessary, either party may request further and better particulars from the other party to seek further disclosure and clarifications on the other party’s disclosure. If a party refuses to provide certain disclosure, the other party may make an application to the Court seeking an order requiring disclosure of specific information and/or documents. Each spouse has the obligation of full and frank disclosure.

Q4. Is the division of assets mostly awarded on a 50/50 split principle?

It is only when there are surplus assets after the parties’ needs are taken care of that the Court would proceed to consider whether to apply the sharing principle.

The starting point for assets division is a 50/50 split unless there are good reasons for departing from an equal division. Some common examples may include: pre-nuptial or post-nuptial agreements; the length of marriage, standard of living during the marriage, earning capacities, etc.); conduct, which will not be considered relevant unless it is “obvious and gross”.

The decision to depart from equality and the weight to be given to any relevant considerations are matters of discretion for the Court and are fact-specific.

Q5. What happens to the matrimonial home?

Whenever a house is owned in both names, both spouses have an equal legal right to live in the marital home. Financial arrangements on divorce can include details of whether the person who remains should buy the others’ share; whether the house will be sold with the proceeds split; or as is often the case, if the person with whom the children reside should be allowed to stay in the property until the children have grown up and leave home, at which point it will be sold and the profits divided.

The property will form part of the matrimonial assets that are divided upon divorce, this will be determined by the Court. The remaining party may buy out the title owner and allot the time at which the home can be sold. Once sold, the proceeds would be split among the parties.

Q6. Is ancillary relief structured as a one-off payment or as periodical instalments?

Subject to the respective financial capabilities, the Court will typically try to achieve a “clean break” by granting lump sum orders and distribution of property orders.

The awarded amount depends on various elements such as the total amount of maintenance a spouse could reasonably expect to get which would cover his/her financial needs throughout the expected duration of maintenance. On the other hand, a clean break may not be appropriate if it would exhaust a party’s capital assets and thus prejudice his/her ability to earn.

Q7. What happens if some of the assets have been disposed right before or during divorce proceedings?

Each spouse must disclose all assets, however when a spouse tries to dissipate assets, it means he’s/she’s intentionally squandering marital property to prevent the other spouse from getting his/her fair share of it in the divorce financial settlement. Sometimes this can result in the act of hiding assets – sometimes simply by transferring an asset to another person or placing funds in foreign accounts or in the names of third parties and proxies. This is particularly common in respect of intangible assets being purchased to deplete or hide large values from the matrimonial pot. In such situations, it might become rather hard to prove the position as often, there is no evidence available. Indeed, Courts require a lot of evidence. Simply having a suspicion is not enough. One cannot simply use a freezing injunction as a tool to obtain disclosure to support certain suspicions and the application must be supported with substantial evidence.

In some instances, the Courts will look at the overall value of the matrimonial assets and will consider whether – despite the wrongdoing – there is enough in the matrimonial pot to provide a fair outcome without the necessity of any interim application. In cases where assets have been hidden or dissipated, a judge can take a strong approach and provide a larger proportion of the matrimonial pot to the injured spouse. In a nutshell, every situation is different.

Q8. How are liabilities taken into consideration?

In the same way that marital assets must be considered during divorce proceedings, so must any debts and liabilities to form the final matrimonial pot to be assessed. The net assets which remain will be shared depending on circumstances and the final Court judgment. But in in certain situations the provenance of the liabilities and the use to which the funds were put become relevant: the Court will try to understand the provenance of debts and liabilities and to ascertain if the debts were used for the benefit of both partners or if they were for individual benefit only. Moreover, the timing of when the debts were incurred – e.g. before or during the marriage or while spouses were already separated – will also be part of the overall consideration.

Q9. How are assets accumulated before marriage and inheritance going to be taken into account?

As a rule of thumb, everything owned or controlled by the parties is to be considered as part of the matrimonial pool. However, there is a difference between assets and property which have been accumulated by the parties during the marriage through their own endeavours and assets which have been inherited or acquired before marriage took place.

Whether inheritances would form part of the matrimonial assets pool is very fact-sensitive: it depends on the size of the inheritance, when it was or will be received, how it was dealt with during the course of the marriage, and upon the financial resources and needs of both parties during and after the marriage. There is a variety of scenarios and there are general rules that may apply.

Q10. How long can matrimonial financial disputes last?

If the couples cannot come to a solution on financial support and separation of assets, then it must be resolved by Court proceedings.

The whole process could take a long time – sometimes even years – to resolve and the Court may make interim orders pending a final decision. Such orders can be made on a “broad brush” approach, meaning that one party may suffer during the long and complex legal battle. Such decisions can include financial provisions for the financially weaker spouse, who can also eventually apply for provisions to sustain legal costs related to divorce proceedings.

For information purposes only. Its contents do not constitute legal advice and readers should not regard this as a substitute for detailed advice in individual instances.

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