Category Archives: Financial Statement

Clean Break In Divorce

When you divorce in Hong Kong, the term “clean break” may be floated around when discussing ancillary relief or financial provision (or more commonly known as “maintenance” in USA jurisdictions). So what is a clean break in a divorce? Clean Break simply refers to the distribution of property and/or payment of a lump sum to settle all financial matters, allowing the parties to move forward with a fresh start and without having to be reminded of the breakdown of the marriage by being tied to ongoing payments.

Under section 7 of the Matrimonial Proceedings and Property Ordinance (Cap. 192), the courts in Hong Kong are under a duty “to have regard to the conduct of the parties and all the circumstances of the case” including the following matters:

The income, earning capacity, property and other financial resources…;
The financial needs, obligations and responsibilities…of the parties…;
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…’
…the value to either of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution…of the marriage, that party will lose the chance of acquiring.

In Hong Kong, the courts are not under any duty to consider whether a clean break is appropriate or not but it may be considered. Generally speaking, a clean break is only an option when there is sufficient monies in a matrimonial pot which would allow the parties to move forward after the payment of one lump sum payment/distribution of property which would settle all financial claims.

In one such case, C v F [2008] HKFLR 1, the parties had a long-term marriage which began in 1965 and a Petition for divorce was filed by the Husband in February 2000. Throughout the marriage, the Husband’s business had grown to the extent that he valued his assets at approximately HK$36 million with an income of approximately HK$800,000 per month. The Husband alleged he had considerable debts as he was heavily indebted to the company and to his business partner. The court ordered a transfer of the former matrimonial home, mortgage free, to the wife and a clean break lump sum to her of HK$15 million.

In YN v NA [2014] HKFLR 517, the court stated that “in big money cases, where the matrimonial assets are sufficient for a clean break to be achieved, a wife with ordinary career prospects is likely to have been compensated by an equal division of the assets and consideration of how the wife’s career might have progressed is unnecessary and should be avoided.”

It should be noted that once a clean break is achieved, a party cannot come back to the court and make an application for maintenance. This in itself is the benefit and advantage with respect to a clean break: it allows the parties to move on with their lives, without being tied to each other by having to make monthly payments to one party and allows each party to live independently without any burdens of the past.

If you are going through a divorce, speak to your solicitor about a clean break and whether it’s the right option for you. If there is a possibility of self-sufficiency, a clean break should be considered an option. If you are concerned about an immediate clean break, discuss alternative options such as a deferred clean break or even consider nominal maintenance which would then allow you an open door to make an application for periodical payments in the future if need be, but at the same time lift the financial burden on the paying party at the current moment.

Spotlight Profile: Kyra Cornwall, Barrister, 1 Hare Court

In this Spotlight Profile, we are talking to Kyra Cornwall, Barrister at 1 Hare Court in London, England. Kyra specializes in high profile matrimonial matters and has extensive experience working on family law matters involving international jurisdictions including Cayman Islands, Singapore, France, Russia and Hong Kong.

Kyra, it is such a pleasure to speak with you today as I know you run a very busy practice in London, England as Barrister to many high-profile matrimonial clients. Kyra, this is your first spotlight profile here on Hong Kong Divorce, can you tell our readers more about yourself and the work that you do in the matrimonial arena in London?

Thank you so much for inviting me. It’s a pleasure to be involved!

I am a Barrister practising at 1 Hare Court, the leading matrimonial finance set in England and Wales. We are based in the heart of legal London, in the middle of the Temple, and specialise in matrimonial finance cases. In my ten years at the Bar, I have developed a practice involving lots of international families, both representing them directly in England and Wales, and offering English advice where proceedings are taking place abroad.

Your practice extends to international jurisdictions. Can you tell us the link that you have to matrimonial matters here in Hong Kong and your experience working on Hong Kong cases?

In 2017, I was awarded the Pegasus Scholarship by the Inns of Court which enabled me to spend that summer in Hong Kong working firstly at Withers then at Temple Chambers (with Richard Todd QC) and finally sitting in on cases at the Family Court with Her Honour Judge Melloy. The purpose of the scholarship is to enable lawyers to build their international awareness and forge links abroad. I had a particular interest in Hong Kong as my father’s family are from Hong Kong originally, and so had been looking for a way to develop international links on a professional basis as well as personally. That summer certainly gave me the ability to do both of those things.

Over the course of my stay, I was fortunate to meet a huge number of family law practitioners and was given a real insight into a legal system that is so similar to that in which I practise in the UK. Since returning to the UK, I have maintained a Hong Kong focus to my work from London, continuing to advise on cases which include connections to Hong Kong.

Have you noticed any changes or differences in your practice as a result of Covid-19 and the ongoing pandemic?

Absolutely. When the pandemic hit in London, many practitioners were still working from hard copy papers and almost all court hearings were in person. Suddenly the courts were closed and the legal world had to take a giant leap into the 21^st century. Within a matter of weeks, papers were being sent electronically and court hearings were taking place via video platform. Although there were some teething problems at the outset, in my view this has been transformative for life as a lawyer and at the Bar particularly.

Prior to the pandemic, a significant portion of my life was spent travelling to Court, waiting around at Court and travelling home again. Being able to operate remotely has virtually removed this, enabling people to work more efficiently and improving work life balance for practitioners.

Beyond this, for those cases involving parties based internationally or where a party has to travel a lot for work, the advent of video platform hearings has also made it much easier for them to be involved without disrupting their working lives so much.

That’s not to say that there have not been problems: there have been technical glitches along the way and there are difficulties when a party does not have more than one screen available to them, but for the most part I think that the pandemic has forced the legal profession to take positive steps that I hope will remain in place moving forward.

One of your areas of specialty is marital agreements. Hong Kong follows the United Kingdom landmark decision as seen in Radmacher v Granatino [2010] UKSC 42. Do you see the law evolving or changing in the future with respect to marital agreements in the UK?

Since the landmark decision in Radmacher, the courts have had to grapple with the questions of whether the parties had all the information material to their decision(s) to enter into a marital agreement, whether each party intended that the agreement should govern the financial consequences of the marriage ending and whether in all the circumstances this is fair.

Whilst the 2010 decision was followed by the Law Commission report in 2014 which suggested that marital agreements should in essence be upgraded to “Qualifying Nuptial Agreements” – i.e. enforceable contracts – in an attempt to provide more certainty to parties, this has not been made into law.

The current approach in the English courts is to focus on the circumstances in which agreements were reached and where they leave the parties in real terms financially, based on all the circumstances of the case. The recent reported decisions demonstrate a reluctance for the court to uphold agreements which are unfair or which do not meet needs objectively (see for example Brack v Brack [2018] EWCA Civ 2862, Ipekci v McConnell [2019] EWFC 19, IU v OS [2020] EWFC 98). The existence of an agreement does not automatically drive a case into needs territory only; it is one of the factors that weighs in the balance. Equally, a lack of legal advice does not automatically render an agreement unfair (see for example Versteegh v Versteegh [2018] EWCA Civ 1050).

That said, anecdotally I would say that a marital agreement that, for example, excludes sharing or fixes provision, does often have the impact of reducing a party’s claim where otherwise they might achieve more.

In Hong Kong, we see many expatriate couples with questions on whether to file in Hong Kong versus their home countries. What advice would you give to those individuals who have a connection to both Hong Kong and England & Wales in terms of jurisdiction in regards to their divorce?

If I were to meet with a new client who had the option of getting divorced in both Hong Kong and England & Wales, I would suggest that they take local advice in both jurisdictions before making a decision. Where the outcome is likely to be similar (as between Hong Kong and England & Wales), it is likely to come down to questions of practicality.

There is one change coming in England & Wales however that may benefit one or both parties. No fault divorce is due to be brought in from April 2022 (i.e. being able to get divorced without having to plead any allegations of blame). This will hopefully help to drive down tensions and therefore reduce some of the distress that divorce proceedings can bring.

There’s sometimes an ongoing belief that England is a better forum to divorce because of the higher potential in terms of ancillary relief (finances) and costs. Is this true or is this simply a misconception?

Both England & Wales and Hong Kong adopt bespoke outcomes on divorce, applying the concept of sharing, and the homemaker is seen to contribute just as much as the breadwinner. On that basis, assets in both jurisdictions are divided on a sharing basis if needs are met. Yes, the numbers are big, but England & Wales and Hong Kong are broadly similar in their approach to outcome.

To that extent, whilst London has the reputation of being generous on divorce, I think that is more due to the system that we apply (i.e. very similar to that of Hong Kong) as compared to the rest of the world. Broadly the same principles apply between England & Wales and Hong Kong when dividing assets and awarding maintenance, but other factors will play into needs-driven outcomes, such as the cost of living, parties’ abilities to work (e.g. visa issues), and access to the courts (Hong Kong grants jurisdiction where parties have a “substantial connection” at the date of petition/application, England & Wales operates a more stringent test).

This was such an interesting chat Kyra, thank you so much for your time. We look forward to having you on board again to discuss other interesting and key topics in the area of matrimonial law!

About Kyra:

Kyra is a barrister at 1 Hare Court in London, England. Kyra specializes in financial remedies, claims after foreign divorce, nuptial agreements and jurisdiction disputes. She is a member of the Family Law Barrister Association (FLBA) and the Inner Temple.

Kyra is described as a “a star in the marking, super clever, slick, elegant and professional” and “a smiling assassin” by both clients and peers.

Kyra’s practice is concentrated on high profile and international matrimonial cases, specifically issues dealing with forum disputes, cases with international trust and company structures, cases with complex issues of enforcement, issues of privilege and cases involving the enforcement of nuptial agreements. She regularly represents husbands and wives in high value and prominent matters, both led and alone in the High Court. She advises clients nationally and internationally, from jurisdictions including the Cayman Islands, Singapore and France, and has a particular interest in cases with links to Hong Kong, having undertaken the Pegasus Scholarship there in 2017.

Kyra is a contributing author of Rayden and Jackson on Divorce and Matrimonial Matters, a comprehensive and key guide for family law practitioners

For more information about Kyra and her practice, you can visit her Chambers’ website: https://www.1hc.com/people/kyra-cornwall/

Relationship Generated Disadvantage

In this article, we will look at the principle which is referred to as “relationship generated disadvantage.”

So what is relationship generated disadvantage in divorce? In divorce, a spouse may request compensation for relationship generated disadvantage and it is most often applied when one party has given up a lucrative career to care for the children of the family. As seen in Miller v Miler; McFarlane v McFarlane [2006] UKHL 24, this concept recognizes that one party, usually a wife, may have seriously damaged his/her ability to earn money for the sake of the family. This is even if the party’s future needs have been met generously.

It should be emphasized that this principle has only been seen in exceptional circumstances so before you believe you can receive such compensation upon divorce, it is important you read through this and most importantly, speak with your solicitor so he/she can advise you properly.

Now that we have clarified the meaning of a “relationship generated disadvantage” let’s talk about a recent UK ruling whereby Mr. Justice Moor stated that a couple who had been married for approximately 10 years and had two children together should split their assets but then added that the wife, a graduate lawyer from Cambridge University who had sacrificed her career to raise the parties’ children should be awarded an additional £400,000 as compensation. It is important to note that this additional £400,000 award was on top of an equal split of the matrimonial pool of approximately £10,000,000.

In his ruling the Judge reasoned that there was a relationship generated disadvantage because the husband, also a lawyer, had enjoyed a “stellar” career and the husband’s career took precedence whilst the wife remained at home as the primary carer of the children.

According to reports from the UK, the couple met in September 1999 when the husband was an associate solicitor and the wife was a trainee. After the wife qualified and made an associate in March 2001, the two individuals became a couple and shortly thereafter the husband became an equity partner at a law firm. The wife worked as a solicitor and in 2006 was promoted to be a managing associate and later moved to a bank to become an in-house lawyer in 2007. After the couple married in 2008, they moved into a large home valued over £5.8 million. Like many couples with children, the pair decided that she would take a step back from her career to raise the children whilst her husband continued to advance in his law career.

According to the reports, the wife returned to work in a part-time non-legal role after her 1^st maternity leave but then was made redundant in December 2016 and has not worked since then.

In awarding the wife £400,000 in a relationship generated disadvantage compensation award, Judge Moor calculated this based upon the husband’s future working life of 4 more years at his firm (before an encouraged retirement after 20 years of practice) and that wife had earned approximately £100,000 a year both at the firm and the bank.

Following this ruling, the wife’s UK lawyer provided a comment to the UK press stating that they were delighted at the outcome for their client and emphasized that their client had sacrificed a potentially lucrative career to raise a family.

It is important to note the UK Judge’s statement in his ruling where he emphasized that “[I] accept that it is unusual to find significant relationship-generated disadvantage that may lead to a claim for compensation but I am clear that this is one such case.” Thus, it is not the usual circumstance where a Family Court will find that a spouse shall receive such compensation.

When a Family Court looks to the distribution of finances, the Family Court will look at factors outlined in Cap 192 Matrimonial Proceedings and Property Ordinance section 7. These factors include:

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
Financial needs obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future
Standard of living enjoyed by the family before the breakdown of the marriage
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

However, this most recent ruling by the UK courts may be something to discuss with your solicitor if you feel you have suffered a relationship generated disadvantage, as it may be an argument to present to the Family Court in your matter and it is apparent the Family Court may consider such compensation to you.

The Fight for the Family Home in Divorce

A major bone of contention among divorcing couples is the division of the family home. This is understandable given that couples invest considerable time, effort and money in creating a dwelling place and for the majority of couples, the family home is a major asset that a couple acquires during the marriage. Having a roof over your head and over the heads of children is of paramount importance to a court when making decisions related to the matrimonial home. It is for this reason that individuals must have a realistic view of what can happen to this asset during a divorce. One potential change may be the loss of the family home. A party to a divorce may be required to “downgrade” to a smaller place or may even be required to rent instead of own a home, which for some is a difficult change of circumstances.

So, with this in mind, what happens to a family home in a divorce and what options are available? Here are a few things to consider when discussing the family home in a divorce:

Sell the Family Home:

One option that divorcing couples opt for is to sell the family home. Proceeds from the sale of the home are then split accordingly between you and your ex-spouse, the split percentage being agreed upon by you and your ex-spouse or by court order. Prior to the agreement or order for the sale of the family home, you and your ex-spouse may be required to hire an expert valuer to value the property in question, especially in circumstances where you and your ex-spouse cannot agree to the listing price or the percentage split of the sales proceeds of the home.

In Hong Kong, the Family Court has the authority to issue what is called a “Mesher order” which basically is an order to sell the family home but at a postponed time until a named event occurs, such as when a minor child graduates from high school or university. The Family Court will look at the facts surrounding the family before making any such orders but the goal in postponing a sale is to consider the accommodation of one spouse and the children.

Another power of the Family Court is to issue what is called a “Martin order.” This is similar to a Mesher Order, except that under a Martin Order, one party is given an entitlement to occupy the family home for life or until remarriage.

In certain situations, if a transfer of property results in one party having a larger share of the matrimonial pool, the individual who receives the greater share may be required to compensate the other party a lump sum of the gain or the receiving party can hold a legal charge over the property until such time he/she can be later compensated.

It is important to bear in mind that if a Family Court makes an order for the sale of the family home, it can only be ordered after you are divorced (Decree Absolute).

Transfer of Property:

Although not common, the Family Court in Hong Kong also has the ability to order a transfer of the family home to the other spouse or a child of the family.

The Family Court in Hong Kong acknowledges that it is generally desirable for the primary caring parent to remain in the family home, on the basis that the children remain in a home they are used to and close to their school, and the Family Court will do what they can to maintain that status quo. This however does not mean the Family Court will not take into account cheaper accommodation if this means capital can be released from the family home and the family can move into similar and satisfactory accommodation.

One thing to keep in mind in a transfer of property situation, is whether there is a mortgage attached to the property as this could affect a transfer of property. What will become a factor is whether the receiving party can maintain the mortgage from either his/her own resources or from maintenance received by the other party.

Buy-Out:

Another option to consider, if you have the ability and the funds, is to buy-out your ex-spouse’s interest in the family home. If you choose this option, talk to your solicitor and discuss what provisions are necessary in an agreement/order to secure your interest in this property.

Stay in the Home Pending Sale/Transfer:

Some divorcing couples may consider staying in the family home and live together pending the finalization of the divorce. While this might make sense for some families, it could also create an environment of stress and tension, not only for the divorcing couple, but also for the children. Before choosing this option, it is important to have a plan and discuss this with your ex-spouse so boundaries are established and communication tools are in place should conflict occur. Having a plan will eliminate any tension that may occur when living in close quarters.

Tenancies:

In a city like Hong Kong, it is not unusual for couples not to own a home, but instead become renters due to the high housing costs. In a divorce, it is not uncommon for one party to remain in the rental unit until such time the lease has expired, subject of course to whether the parties have the ability to pay the rent.

Adjustments must be made at times and this relates to rental units as well. In certain cases, there may be insufficient income to pay for two rents each month. Such adjustments may include a “downgrade” to a smaller, less expensive rental unit or even adjust the standard of living.

Discuss these options with your ex-spouse, along with your solicitor. Your solicitor can provide you with more detail on what options are best suited for you and your unique circumstances. While it may be uncomfortable and upsetting to divide an important asset such as the family home, this may also be an opportunity to start fresh and create a new home for you and your family.

Financial Savviness In Divorce

It is no surprise that one of the main issues that can cause tension between divorcing couples is money. It is for this very reason that it is extremely important for both parties to be aware of their financial picture during the divorce process. Many times, a husband or wife may wish to bury their head in the sand, refusing to deal with the details of the matrimonial asset pool. This alone can place the individual at a great disadvantage.

Ideally, it is important to be financially aware of the matrimonial finances during the marriage and to be informed of all assets and debts that make up the matrimonial estate. However, it is common for couples to divvy up responsibilities leaving one party responsible for the collective finances of the home. This places one spouse at a disadvantage and when the couple decide to divorce it becomes difficult when all finances must be disclosed and division is necessary. Not to worry however, it is never too late to educate yourself on your finances to assist you during the divorce process.

When you divorce in Hong Kong, one of the first things you must fill out is a Form E. This is a very detailed form where you and your spouse must each disclose all assets at their current value as well as liabilities and ongoing/future expenses. This allows the parties and the Family Court to gain a more in-depth view of the matrimonial pot. Gaining an overview of the matrimonial pot will be exceptionally more difficult if your spouse is not forthcoming about the finances and you are not well-versed in what you and your spouse have in terms of assets and debts.

It is for this very reason that it is important to be financially savvy during the divorce process. Here are a few things to keep in mind so that you are in a better financial position both during and after your divorce:

Organize, Organize and Organize More: Everyone is talking about organization guru Marie Kondo. Well, it’s time to Marie Kondo your finances and organize all your financial documents so that you know what assets and liabilities you have. To save trees, you can organize financial documents in folders on your computer and keep them in a confidential file that only you have access to. By saving and keeping all key financial documentation on hand, it will be extremely helpful to you and to your solicitor when it comes time to exchange all financial information with your spouse and his/her solicitor. By being organized, the process of providing financial discovery will not be as daunting or overwhelming. I repeat, it is not helpful to dump a suitcase full of unorganized documents at your solicitor’s office. This will only increase your costs owed to your solicitor at the end of the day if they have to sift through everything for you.
Knowledge is Power: When you are organized, you will have a better understanding of what accounts you have and how much money is owed. In divorce, your financial picture changes drastically and you will need to come to terms with a new normal when it comes to your finances. No longer are you partnered with someone who may be contributing to your monthly income. Thus, if you are educated about your personal finances, you are in a better position to determine a budget for you and your family going forward and create a feasible financial plan post-divorce.
Keep Your Finances Separate Post-Separation: Once you separate, it may be a good idea to open up your own bank/credit card accounts to keep your finances separate and keep track of what you have and/are spending post-separation. This will also help when the matrimonial pot is being divided and you can easily keep track of expenses if this becomes an issue when discussing spousal maintenance and children’s expenses.

In addition to the assistance your solicitor will be providing you, it might also be helpful for you to consider hiring a professional financial planner. A financial planner can help you organize your finances and assist you in the budget process to create a foundation for a healthy financial picture going forward.

Clean Break In Divorce

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