Should I get a divorce? The legal and financial implications behind remaining married but separated

13Mar2020

Making the decision to divorce is often not an easy one. There are many reasons why married couples may opt to separate rather than progress legal proceedings to divorce.

Whether it is for religious reasons, a desire to maintain the status quo and a family construct for the sake of children or simply because a couple needs to take some time before formally commencing legal proceedings, the decision to be separated but remain legally married can have legal and financial implications which must be properly considered.

  1. Financial Matters

    There may be an assumption that upon separation, finances will also become separated. However, this is not always the case.
     
    • Assets

      Assets accumulated during a marriage (in sole names and in joint names) form part of the ‘matrimonial pot’, the pool of assets to be shared on divorce.  Specific assets can be ring-fenced and excluded from the pot. It is not always easy to determine whether an asset is out of the pot or has fallen into the pot.

      If parties separate but do not formally divorce, they continue to share the assets in the pot until formal agreements and orders are made. Any increase or decrease in value will be shared equally between the parties.

      Normally growth in the value of assets is matrimonial property. Therefore, if the parties decide to divorce, the full value as at the time of the divorce falls within the matrimonial pot until the Ancillary Relief trial at which, in the absence of agreement, the court will decide who gets which assets and what percentage of them from the matrimonial pot.

      The courts have considered to what extent to include post-separation accruals in the matrimonial pot in several cases.  The decision covers whether post-separation bonuses will fall within the matrimonial pot. These are fact-specific questions, and specific legal advice should be sought prior to a decision to separate.
       
    • Liabilities

      Separation is not enough to extinguish liability for a spouse’s debts, including those inclined during a period of separation.

      Generally, individuals are only liable for their spouse’s debt if the liability is under both names, i.e. they are joint account holders or are co-signers. However, while an individual may not be personally liable for any debts or obligations, any assets jointly owned by the spouses may still be subject to forfeiture to satisfy any debts. 
       
  2. Wills and Probate

    Where one spouse has made a will, and a gift in the will has been left for the spouse, a divorce will have the effect of automatically causing the testamentary gift to a former spouse or benefits under a family trust to lapse.

    Where a couple remains married but separated, active steps should be taken to make a new will so that the other spouse will no longer be entitled to the gift. Where no such steps are taken prior to the death, there is a risk of legal battles over the estate between the separated spouse and the deceased’s beneficiaries.

    The matter is complicated by the Inheritance (Provision for Family and Dependents) Ordinance (Cap 481), under which a spouse who has been excluded from a will may be able to apply to the Court for an order that reasonable provisions be made to them out of the deceased’s net estate. In the ordinance, “husband” or “wife” is defined as a husband or wife by a valid marriage, of which if no formal divorce is obtained, a separated spouse will remain.  The ordinance also applies to spouses who have obtained judicial separation (see below).

    The ordinance specifies that a court must have regard to “the provision which the applicant might reasonably have expected to receive if on the day on which the deceased died the marriage, instead of being terminated by death, had been terminated by a decree of divorce”.

    A court will also consider whether the spouse was maintained by the deceased, either wholly or substantially, before their death. This means that where separated, but still married, spouses remain financially reliant on another, there is a higher possibility that an order for maintenance be awarded to a separated spouse.  Again, this is fact-specific and you are advised to seek legal advice for your circumstances.

    Where a spouse dies without a will, section 4 of the Intestates’ Estates Ordinance (Cap 73), provides the spouse of the deceased with an entitlement to the deceased’s estate, as follows:-
     
    • If the couple does not have any children and no other parent, siblings of whole blood (i.e. siblings from the same parents) or children of such siblings are living, the surviving spouse will be entitled to 100% of your estate;
       
    • If the couple have children, the surviving spouse will be entitled to firstly all of the personal chattels and HK$500,000 and then 50% of any remaining estate;
       
    • If the couple does not have any children, but one or more of the deceased’s parents or siblings of whole blood are living, the surviving spouse will be entitled to firstly all of your personal chattels and HK$1,000,000 and then 50% of any remaining estate.

Practical tips: what to do if you are considering separation without divorce

  1. Discuss with your spouse what your intentions are and ideally agree on a separation date.  
     
  2. Take steps to ensure assets are no longer co-mingled. Co-mingling of assets occurs when a spouse’s otherwise separate asset is mixed or combined with the marital assets or with the other spouse’s separate assets. For example, if your monthly salary is put into a joint bank account and used to pay the mortgage of the former matrimonial home, the monies have been co-mingled.
     
  3. Consider whether mediation is appropriate to discuss how assets should be split.
     
  4. Enter into a Deed of Separation[1], which is an agreement containing details on financial and children’s arrangements.

    A Deed of Separation can be as detailed as the couple would like, including a thorough breakdown of financial disclosure as at the time of the deed and include practical considerations such as but not limited to:

    a. how to separate joint bank accounts and savings;

    b. how to divide personal property, such as cars, wedding gifts and other valuables, and household property;

    c. how the money from the sale of the matrimonial home shall be split between the parties or which party will continue to live in the matrimonial home;

    d. whether there will be any future maintenance payments;

    e. care arrangements for the children (and even for pets); and

    f. whether to agree to petition for divorce at a later date.

    What is included in the Deed of Separation will fact-specific to the circumstances of each couple.  Tanner De Witt can assist you in determining what should be included in a Deed of Separation based on your individual circumstances.

    A Deed of Separation is an enforceable contract which can be enforced like any other contract. The usual remedies for breach of contract can be sought. A deed is appropriate where the spouses remain in a harmonious relationship, and it is likely that each party will act in accordance with the deed and agree to be bound by the terms.

    Where a party to a Deed of Separation challenges the deed, the court will consider all of the circumstance[2], including the relationship between the parties, circumstances leading to the separation and the circumstances surrounding the execution of the deed and whether the terms are reasonable.

    However, if the couple later decides to divorce, the court’s jurisdiction cannot be ousted.  While a court will generally uphold the terms of the deed, it may make its own order based on the application of either party.
     
  5. You may also consider applying to the court for a judicial separation. This is a legal process which formalises the separation. For more information, please see our article on judicial separation here.

Joanne Lam

If you would like to discuss any of the matters raised in this article, please contact:

Joanne Brown
Partner | E-mail

Mark Side
Partner | E-mail

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.


[1] Sometimes also known as an ‘Edgar agreement’, after the case if Edgar v Edgar [1980] 1 WLR 1410

[2] See for example, WONG MAN v CHEN SING ZIANG – [2004] HKCU 123; H v N (Specific Performance) – [2011] HKFLR 584