When a marriage breaks down, one of the most contentious issues that couples often face is the division of their assets. In Singapore, the law governing the division of matrimonial assets is found in the Women’s Charter, which provides for a fair and equitable distribution of assets between the parties. Not all assets are considered part of the matrimonial pool for division though. One such category of assets is gifts and inheritances received by either spouse during the marriage.
However, the saga involving parties known as CLC and CLB has shown that there are exceptions to this rule. The Court’s decisions in the long-running litigation involving these parties require lawyers and parties to re-establish best practices; to ensure that a party seeking to protect their exclusive rights to a gift or inheritance can preserve those rights in the event of a divorce. These principles apply equally to a situation in which the parties have executed a Pre-Nuptial Agreement (“PNA”) which seeks to ring-fence gifted or inherited property.
Background Facts
The couple in this case were both aged 53 and had been married for just shy of 16 years at the time of their divorce. They had 2 children in their early teens. 5 days prior to their marriage, the parties executed a PNA, in which they specifically excluded inheritances from the pool of matrimonial assets for division. Subsequently, the husband received inheritances from his late father. Those assets were held in various bank and investment accounts, some of which the husband co-mingled with the wife, by transferring certain sums into their joint bank account (“the disputed assets”). The husband sought to exclude the disputed assets by enforcing the PNA in its entirety, whilst the wife presented correspondence between the parties which she argued was demonstrative of the husband’s intention that the disputed assets belonged to the family, and thereby constituted matrimonial assets.
In the Family Division of the High Court, Justice Debbie Ong (“Ong J”), as she then was, held that several of the disputed assets fell within the pool of matrimonial assets for division. This was on the basis that the husband’s emails to the wife suggested that he had intended for these disputed assets to benefit both parties, notwithstanding the provisions in the PNA. We wrote about this decision previously here. The husband appealed against this decision, and on appeal the Appellate Division of the High Court reversed the lower court’s decision with respect to the disputed assets. The wife was given leave to further appeal to the Court of Appeal.
The Issues before the Court of Appeal
The wife’s appeal to the Court of Appeal, CLB v CLC [2023] SGCA 10, centered on two key issues. Firstly, whether the provisions of the Women’s Charter supported a determination of whether an asset acquired by way of gift or inheritance has lost its character as such, by way of reference to the intention of the donee spouse. Secondly, what were the relevant principles for tracing an asset back to a gift or inheritance, particularly where gifted or inherited monies have become co-mingled with other funds, and which party bears the burden of proving this before the Court.
The Court’s Decision
Judith Prakash JCA (“Prakash JCA”) delivered the judgment of the Court of Appeal.
Firstly, the Court reiterated that the intention of a spouse in relation to an asset acquired by gift or inheritance can be taken into account in determining whether that asset has lost its character as a gift or inheritance and has thereby been transformed into a matrimonial asset. For instance, where a party has received a gift or inheritance but evinces an intention to give it to the other party or to incorporate it into the family estate, the Court of Appeal held that such gifts or inheritances can be included in the pool of matrimonial assets for division.
The Court, departing from a decades-old legal position, recognized also that an implication of this decision was that pure inter-spousal gifts (i.e., a gift given by one spouse to the other) could be excluded from the pool of matrimonial assets. This would be in situations where the gifting spouse gives a gift to the recipient spouse, intending the recipient spouse to solely benefit from that gift. The Court did caution that, because a spouse could have other reasons for transferring an asset to the other spouse, not all transfers of assets from one spouse to another should be regarded as such a gift. The Court noted that it is ‘ultimately a question of fact as to what a donee spouse intended to do with their asset’.
Secondly, the Court held that where a party transfers non-matrimonial monies into a bank account owned jointly with the other spouse, a rebuttable presumption arises that the transferring spouse intends to share those monies with the other spouse. It would then fall to the transferring spouse to explain their reasons for having made that transfer without having such an intention.
Thirdly, with respect to tracing, the Court took the view that the burden of proving that an asset has been acquired through a gift or inheritance, and is thereby not a matrimonial asset, rests on the party asserting that the asset is a gift or inheritance. The Court also emphasized the importance of having sufficient evidence to prove every link in the chain of tracing between the current asset and the original, gifted or inherited, asset. Whilst equitable rules of tracing could be applied, the Court held that the tracing exercise is meant to be commonsensical and not overly complicated or technical. The Court noted that the question of co-mingling of the matrimonial assets and assets acquired by gift or inheritance is a question of identifying the latter. Whilst co-mingling of said assets does not mean that the latter assets lose its nature as a gift or inheritance, it is likely to make such tracing more difficult.
On the basis of the above, the Court allowed the appeal and incorporated several of the disputed assets into the pool of matrimonial assets for division. The Court found that the husband had indeed demonstrated a clear and unambiguous intention for some of the gifted and inherited property to constitute part of the family estate. The husband had, for instance, listed some of the disputed assets in lists titled ‘Our Net Worth’ which he sent to the wife. The husband had also deposited inherited monies into accounts that he held jointly with the wife; and used these funds for the benefit of the family. Prakash JCA held that by virtue of the husband’s intention, the disputed assets had lost their character as a gift or inheritance; and should rightly be regarded as matrimonial assets.
Best Practices
This case paves the way for spouses’ intentions to play a more pivotal role in the court’s analysis of the division of assets on divorce. The Court of Appeal’s judgment illustrates the importance of parties acting consistently with their intention to keep any gifted or inherited assets separate from those of the family’s estate. As such, the earlier judgment of the Family Division of the High Court, with respect to the importance of parties acting consistently with their intentions in a PNA, remains pertinent (see our summary of this judgement here).
As a result of the Court of Appeal’s decision, spouses who have entered into a PNA, or spouses who have received substantial gifts or inheritances from third parties, should bear in mind the following principles.
Firstly, a spouse who suggests to the other spouse, in writing or otherwise, that certain assets are matrimonial assets, must be prepared for such a suggestion to be given effect in the event of a divorce. A PNA is a useful tool in evidencing the intentions of the parties at the outset of their marriage. It is, however important that the parties’ subsequent words and actions do not differ from that intention. A spouse that wishes to benefit from the exclusion for gifted and inherited property under the Women’s Charter, or any ring-fencing of assets provided for in a PNA, must conduct himself or herself consistently with such an intention. An intention may manifest by words or by conduct. Notably, the Court was prepared to take heed of not only the parties’ email correspondence, but also their WhatsApp messages. One should therefore be mindful of what is expressed not only in more formal correspondence, but also in casual day-to-day communications. Any written communication which suggests that a party may have formed intentions that differ from that specified in their PNA, could be construed to that party’s prejudice.
Secondly, whilst the judgment suggests that it is possible for inherited or gifted monies to be traced through a co-mingled fund (such a jointly-owned bank account), doing so remains highly inadvisable. Funds that are transferred into a joint account are presumed to be for both spouses’ benefit. Notwithstanding the Court of Appeal’s suggestion that tracing through a co-mingled funds remains possible, evidentially it will be difficult to show that the gifted or inherited monies remain separately identifiable within a co-mingled fund. A party attempting to trace through a co-mingled fund such a jointly-owned bank account thus faces hurdles both legally and evidentially. A party transferring funds into a jointly-owned bank account must thus be conscientious about this decision, and be aware of the likely implications of doing so.
The Court of Appeal’s decision in CLC v CLB, [2023] SGCA 10, can be aptly summarized in a single sentence. As Prakash JCA wrote at [64]: ‘A spouse who has a proprietary interest in a non-matrimonial asset naturally has the right to deal with that asset in any way the spouse wishes, including by bringing it into the matrimonial pool.’ The Court of Appeal’s decision highlights the need for parties to be conscientious of any intention that they communicate or evince in respect of their assets. Any intention, even inadvertently conveyed, can be bindingly given effect to.
The authors would like to thank Ms Imogen Harvey for her invaluable assistance in writing this article.
For further information, please contact:
Ivan Cheong, Partner, Withersworldwide
ivan.cheong@withersworldwide.com
