There is no absolute rule as to what constitutes a matrimonial asset or when an asset falls into the matrimonial pot (or indeed when it falls out of the matrimonial pot); it depends on the circumstances of each case.
In general, income earned, and assets acquired after the date of marriage are usually considered matrimonial assets. However, the Court has a wide discretion to make exceptions in each case taking into account crucial factors such as the length of marriage, source of asset, the nature and value of the asset and the needs of the parties.
In the cases of Miller v Miller and McFarlane v McFarlane  1 UKHL 24, Lord Nicholls defined “matrimonial property” as being “property acquired during the marriage otherwise than by inheritance or gift”, such property being “the financial product of the parties’ common endeavour”. Lord Nicholls also warned that effort and expenses should not be wasted in trying to establish a sharp dividing between what is and what is not matrimonial property.
Division of Assets Generally – the Section 7 Factors and the Principles in LKW v DD  13 HKCFAR 537 (“LKW”)
When making financial orders, the Hong Kong Courts will consider a list of factors pursuant to section 7 of the Matrimonial Proceedings and Property Ordinance, Cap. 192 (MPPO) (“s.7 MPPO Factors”) including income, financial needs, the standard of living, age and duration of marriage, disability of the parties, the contributions by the parties and the loss of any benefit by reason of divorce.
Whilst the s. 7 MPPO Factors are taken into account by the Courts when determining any financial relief claims in matrimonial proceedings, this is not an exhaustive list as the Courts have wide discretion and must look all the circumstances of each case.
The Court of Final Appeal in the case of LKW, introduced a 5-step exercise on how the Court should approach the s. 7 MPPO Factors and the division of assets. The 5-step exercise includes (1) identifying the assets/the matrimonial pot (2) assessing the parties’ financial needs (3) if there remain surplus assets after assessment of the needs, deciding to apply the sharing principle (i.e. 50/50 division of assets) (4) considering whether there are good reasons warranting a departure from the sharing principle and (5) deciding the outcome.
Overall, when conducting the 5-step exercise, the Court must also bear in mind the four overarching principles. These are (1) the objective of fairness (2) the rejection of discrimination (3) the yardstick of equality and (4) the rejection of minute retrospective investigations.
Even where an asset is identified as “non-matrimonial”, there is no hard and fast rule that such property should be excluded from the matrimonial pot. The two cases below will demonstrate the approach the Hong Kong Courts have taken when dealing with pre-martial assets.
In PW v PPTW (ancillary relief; non-matrimonial property)  HKFLR 213, the Court of Appeal upheld the trial Judge’s decision to include the non-matrimonial assets in the matrimonial pot. In this case, the parties were married for 14 years and had two children. The husband was 18 years older than the wife and almost all of the matrimonial assets were acquired by the husband prior to the marriage. In this case, the questions of duration of the marriage, intermingling of the assets and how these were treated by the parties during the marriage were all relevant in determining how much of the pre-marital assets should be excluded. The parties enjoyed a high standard of living during the marriage and the wealth generated by the husband’s substantial assets was mingled with the matrimonial assets to fund their living standard. As such, it was held that the husband must have accepted that the premarital assets should not be excluded from sharing.
In SSLT v SMFC  HKFLR 458, the wife argued that the parties’ investments and pensions accrued before the marriage should be included in the matrimonial assets. The husband sought to ring-fence those assets. The Judge held that since the pre-marital assets had not been intermingled with any matrimonial assets, nor had they been used for the benefit of the family, they should be held separately by the parties and excluded from the matrimonial pot. The decision tilted in favour of the husband as the wife also admitted that she had made no contribution to the husband’s pensions, nor had she had any involvement with the investment portfolio.
Assets Acquired Post-separation
Bonuses are a common form of compensation. They can be contractual or discretionary and can be deferred or paid immediately. When dealing with divorce and division of assets, parties are sometimes faced with the question of whether the paying party should be expected to share his or her bonuses post-separation, and if so, for how long?
Generally, bonuses received during the parties’ marriage would be considered as matrimonial assets. This is the same with bonuses if received after separation but accrued during the financial period when the parties were together. However, often issues arise when:-
- Bonuses accrued between separation and trial (where there has been a lengthy period of separation); and
- Bonuses that are deferred and paid at a later date.
The English Courts approach
There has been a divergence of approaches in the English family court on the treatment of bonuses upon divorce which has led to some uncertainty.
In Rossi v Rossi  EWHC 1482 (Fam), it was held that bonuses awarded within 12 months post-separation should be shared. In his judgment, Mostyn J stated “if the post- separation asset is a bonus or other earned income then it is obvious that if the payment relates to a period when the parties were cohabiting then the earner cannot claim it to be non-matrimonial. Even if the payment relates to a period immediately following separation I would myself say that it is too close to the marriage to justify categorisation as non-matrimonial”. He went on to state “[a]lthough there is an element of arbitrariness here I myself would not allow a post-separation bonus to be classed as non-matrimonial unless it related to a period which commenced at least 12 months after separation.”
In H v H  EWHC 459 (Fam), it was held that post-separation assets should not be “shared” after separation, but the financially weaker party may be awarded an additional amount as a “run-off” award. The wife in this case was awarded declining percentages of the husband’s bonuses in the 3 years after separation (i.e., one half of the assets as at the date of separation, one-third of the 2005 bonus, one-sixth of the 2006 bonus and one-twelfth of the 2007 bonus), with the objective to ease the transition to her independent living.
In CR v CR  EWHC 3334 (Fam), it was held that the date of separation was not relevant when determining pre/post marital assets, particularly where the parties’ role in respect of financial arrangements had not changed since the separation and there had been a “financial continuum” of their financial arrangements prior to separation. This is especially true where the accruals have not come from any new source of risk, endeavour, or luck.
In H v W  EHWC 4105, it was held that bonuses awarded post-separation can be used to “top-up” the maintenance where reasonable income needs cannot be met from the spouse’s basic salary. In this case, bonuses had been traditionally relied upon throughout the marriage to fund the parties’ standard of living.
In Waggott v Waggott  EWCA Civ 727, the wife sought a share of the husband’s bonuses and future earnings submitting that it was built up during the marriage and was, therefore, the product of martial endeavour. In dismissing the wife’s appeal, Lord Justice Moylan held that an earning capacity was not a matrimonial asset to which the sharing principle applied. Any extension of the sharing principle to post-separation earnings would fundamentally undermine the court’s ability to effect a clean break.
In the recent case of E v L  EWFC 60, Mostyn J held that “save in cases where there has been undue delay between the separation and the placing of the matter for trial before the court, the end date for the purposes of calculation of the acquest should be the date of trial. This rule of thumb should apply forcefully to assets in place at the point of separation which has shifted in value between then and trial”. For new assets, such as earnings made during separation, Mostyn J followed his previous judgment in Rossi where he stated that he would not “allow post-separation bonuses to be classed as non-matrimonial unless it related to a period which commenced at least 12 months after the separation”.
There appears to be some clarity in the approach on how post-separation earnings may be treated following E v L. The case makes it clear that new earnings and assets post-separation could be considered as marital assets unless these were earned or acquired 12 months after separation. But where the need is greater than the asset pool, as seen in H v W, the court may still rely on post-separation bonuses to top-up maintenance if these were traditionally relied upon during marriage to fund the parties’ lifestyle.
The Approach in Hong Kong
The treatment of post separation accruals remains somewhat of a grey area in Hong Kong. Ultimately, it will depend on the circumstances and facts of the case.
In the Court of Final Appeal case, Kan Lai Kwan v Poon Lok To Otto  HKFLR 329, the principle in Rossi was adopted and applied i.e. (1) where there had been a substantial period of separation prior to the hearing and (2) if during that period there has been a steep increase in the value of the matrimonial assets by the independent business or professional efforts by one spouse, unmatched by any contribution from the other spouse, then grounds might exist for departing from equality. However, in this case, the increased profits after separation did not provide a ground for departure from the equal sharing principle. The marriage spanned more than 40 years and it was held that the period of separation prior to the hearing date was relatively insignificant. The post separation profits arose out of the business which had been built up during the marriage. Consequently, it was held that the wife could legitimately claim an unascertained share.
In JHCI v MSYI  HKFLR 1, the question arose as to whether unvested shares and bonuses accrued after separation should be considered as matrimonial assets. In this case, the husband had joined a new company three years after the parties separated. In respect of the unvested shares, Judge Melloy highlighted the difficulty in valuing the shares accurately as these were yet to be vested in the husband. She accepted, however, that although they fell into the category of post-separation accruals, the unvested shares were a financial resource in the foreseeable future and since the husband did not have the funds to pay for all of the orders in one go, “it would be necessary for him to rely on the unvested shares to some degree”. In respect of the cash bonus, the Judge held that although it was accepted that it may be a post-separation accrual, it would be inequitable if the husband was to receive a significantly enhanced cash bonus in the immediate to short term which meant that the wife’s standard of living was reduced but not the husband’s. Therefore, the husband was ordered to pay the wife an additional 50% of the cash bonuses received for the year ended 2014 and 2015.
In A v B (Ancillary Relief)  1 HKLRD 187, Judge Bruno Chan adopted the passage from the decision of Mostyn J in Rossi as the starting point for analysis on the law in relation to post-separation accruals.
In AB v MA (Ancillary Relief)  HKFLR 270, it was held that the assessment of assets should be at the date of trial. Having found that the parties separated in March 2014, the Judge awarded the wife the husband’s earnings and benefit from his new employment up to the time of trial in 2016 to be included in the martial assets for sharing. The wife was awarded half of the matrimonial pot, excluding the husband’s unvested shares. However, the wife was also awarded a share of the husband’s 2014, 2015 and 2016 shares as and when they vested and became saleable in a reducing percentage of 50%, 25% and 12.5% over three years.
In SSLT v SMFC  HKCU 3982, the Judge followed the 1-year rule in Rossi and held that in this case, the lapse of time was not long enough to deem the entire bonus as non-matrimonial as there was only a lapse of 8–9 months after separation when the bonus period commenced. Half of the bonus was included in the matrimonial pot for division. As for a deferred share profit payment received 2.5 years after separation (which was also part of the bonuses that had been held back in the previous years), the Judge held that it could not be argued that the money did not relate to any time during the relationship and was not part of the marital acquest. As such, half of the sum would be included as matrimonial asset.
As can be seen from the above, there is ‘no one size that fits all’ approach. The pre-marital assets and assets acquired post-separation will be included when ascertaining the matrimonial pot. However, how the assets are divided will depend on the circumstances of the case and the needs of the parties. In respect of post-separation accruals, the percentage or amount to be included will generally depend on the length of separation, how the parties have managed their finances post-separation and the parties’ relative needs. These are all fact-specific questions, and the outcome may differ depending on the circumstances of each case.
If parties want certainty as to the treatment of assets acquired pre-marriage or post-separation, they should consider entering into a pre-nuptial agreement to ring-fence such assets.
For further information, please contact:
Kajal Aswani, Partner, Gall