Legal update: Ancillary relief: the case of short marriage between young couples without children22Apr2016
The Court of Appeal judgement in AVT v VNT  HKEC 1298 is a good example of the departure from equal sharing of matrimonial assets in the case of a short and childless marriage. This case concerns a medium-sized estate and a comfortable standard of living enjoyed throughout the marriage. Common topics discussed are whether to provide the financially weaker spouse a permanent home or rental provision, what impact would potential post-divorce changes have on the divorce and whether family businesses are non-matrimonial properties. Whilst the rulings in this case should not be interpreted as imposing a straitjacket approach on future comparable cases, it is nevertheless interesting to see a high court’s views and concerns on these topics.
The facts of the case are straightforward:
- Marriage of about 3.5 years, no children, young Indian couple (husband 39 and wife 37) living in Hong Kong;
- Husband’s major asset is his 30% minority shareholding in a successful family business in Hong Kong. His shareholding is valued at HK$30.03 million, which includes a 20% discount for the fact of minority shareholding which suggested little control of the economic usage of the business. The husband’s father owns 70% of the company;
- In addition to the company, the husband had about HK$340,000 in cash deposits and a MPF portfolio of about HK$340,000. He had also been loaned about HK$470,000 from his company;
- The wife did not work throughout the marriage. She had not had a formal job since university graduation. She had a share portfolio of about HK$1.5 million. She cannot speak Cantonese. She plans to become a personal therapist and life coach in Hong Kong within 3 years after the divorce;
- Initially after marriage, the couple resided at the rented apartment of the husband’s parents. The apartment rent was paid by the husband’s father. Subsequently, the couple moved to live in a serviced apartment whose rental was paid by the husband’s company. There were discussions to purchase a property and efforts to find a matrimonial home but at the time of separation no property had been purchased;
- Comfortable standard of living.
The final award to the wife was a lump sum of HK$6 million, about 20% of total joint assets. This comprised of:
(i) HK$3.25 million to satisfy the accommodation needs of the wife;
(i) HK$2.25 million for her maintenance of 3 years after the marriage (her monthly expense excluding rent was about HK$67,000 per month); and
(iii) HK$500,000 for the wife’s contribution to the welfare of the marriage.
It should be noted that in considering the wife’s needs the Judge took into account that the wife had not made full disclosure of her financial resources in India which suggests she might not have needs for permanent accommodation in Hong Kong.
The wife’s accommodation needs
The wife requested a purchased property in the award. She produced evidence of discussions with real estate agents to show that the couple had, prior to the divorce, intended to purchase a matrimonial home save that the plan had yet to be substantiated. At first instance, the lower court granted HK$7.2 million for the wife to purchase a property.
The Court of Appeal dismissed the award of a permanent property to the wife. Lam VP ruled that in the circumstances of a short and childless marriage between a young couple, granting a lifelong provision to the wife might not be fair on the husband because a young divorcee is capable of substantial financial changes over the long-term, such as remarriage or a change in lifestyle pattern. Fairness dictates that such inherent uncertainties should be taken into account in deciding the proper level for a lump sum award.
A significant fact of this case is that the couple had not purchased a matrimonial home or lived in a property owned by one of them or their alter ego. The wife lodged evidence of efforts and communications with real estate agents to show the intention of the parties to purchase a property. Lam VP commented that such intentions during marriage have no significance in the circumstances.
Notwithstanding the above, it was held that since the wife had not been working throughout the marriage her accommodation needs would have to be more generously interpreted and it should not be confined to three years’ rental of a suitable property and thus an award on broad brush was offered at HK$3.25 million for the wife’s rental needs.
The husband’s financial resources to pay the ancillary relief award
The husband argued that he lacked liquidity and income to fulfil the award of HK$6 million to the wife. The Court considered the reality of the situation, including what might reasonably be made available to the husband if a request for assistance were to be made.
Cheung JA considered that the husband’s lifestyle has always been funded by the family business by way of borrowing which points to the reality that the husband has the resources to pay the wife. Specifically, it was clarified that such ruling is not in any way allowing judicious encouragement by the husband’s family to be included in a matrimonial award. It seems that the husband’s past conduct of making various borrowings from the company to fund his lifestyle is the major indicator of the husband’s available financial resource.
Is the family business a non-matrimonial asset?
Whether the husband’s family business should be treated as a non-matrimonial asset was not argued as an issue in this case. The judges briefly expressed their views on non-matrimonial properties as follows:
- If there are matrimonial acquest acquired during the course of marriage, no matter how short the marriage, the principle of sharing will be applicable;
- In Hong Kong, the sharing principle is also applicable to non-matrimonial property though the short duration of a marriage will give rise to a good reason for substantial departure from equal division;
- It follows that the longer the marriage, the greater the intermingling of the affairs of the parties to the marriage and the greater the claim for future needs of a longer period of time (or even life-long needs) to be taken into account in the fair distribution of the resources of the parties.
This case should not be interpreted as a definitive precedent that family businesses are warranted non-matrimonial properties or that spousal maintenance in short and childless marriages shall be capped at 3 years of financial provision only.
The ancillary relief is a discretionary award. Each case is different on its facts and thus the weight given to the same factor (such as unemployment of one spouse during the marriage) also varies in cases. In AVT v VNT, it could be possible that when assessing the wife’s needs from the evidence, the judges decided that it would be fair to give slightly more weight to the wife’s comfortable standard of living enjoyed before the marriage and her non-disclosure. The same consideration might not be given in other cases.
The simple advice is: if there are concerns of asset protection from a divorce, do not take risks. Contact a lawyer to discuss your concerns, before and during a marriage.
The above is not intended to be relied on as legal advice and specific legal advice should be sought at all times in relation to the above.
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.