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LIFE

How the law is changing divorce in Hong Kong - the 'graveyard of marriages'

In the final of a two-part series on divorce, Charley Lanyon looks at how a recent court ruling on prenuptial agreements is likely to change legal settlements among high-income couples

PUBLISHED : Sunday, 17 August, 2014, 9:47pm
UPDATED : Monday, 18 August, 2014, 2:44pm

Hong Kong has the dubious honour of having been crowned the divorce capital of Asia, according to Marcus Dearle, a partner at law firm Withers, which handles some of the city's most lucrative divorce cases.

Dearle was in a celebratory mood last month following a big win for the firm. It was one that could change the landscape of divorce proceedings in Hong Kong, and is being closely watched by legal scholars and high-income couples alike.

On June 9, Sharon Ser, the head of the firm's family department, won a court case known simply as SPH vs SA, which brought Hong Kong into line with English law in regards to prenuptial agreements.

It instructs local courts to follow the findings of a ground-breaking 2010 English prenuptial case, Radmacher vs Granatino. That means the court should honour any prenuptial agreement freely entered into by both parties, "unless in the circumstances it would not be fair to hold the parties to their agreement", says Withers.

Now that prenuptial agreements carry legal weight in Hong Kong, their popularity will continue to surge, lawyers say.

Overall, the sheer number of divorces in the city is startling. According to Jennifer Ip of law firm Ip & Heathfield, 22,000 couples filed for divorce last year, of which 20,000 were granted. Matrimonial lawyers also refer to Hong Kong as the graveyard of marriages.

When wealthy couples part ways, the sums of money at stake can be staggering. The largest amount awarded by a Hong Kong court was in the Florence Tsang case: in 2011 she was awarded HK$1.22 billion, but in January this year it was reduced by the Court of Appeal to HK$411 million.

Thanks to such well-publicised huge payouts, the city has gained a reputation as the place to go for financially weaker spouses - almost always wives - to file for divorce.

Compared to places such as the mainland, Malaysia and the Philippines, where the majority of assets are routinely granted to the financially stronger party - almost always the husband - divorce proceedings in Hong Kong are more transparent and fair, as well as being much more generous, lawyers say.

The trend took off in 2010 when a ruling in the LKW vs DD case found that Hong Kong should follow England's famously generous divorce laws.

England had become a destination for high-value divorces with substantial payouts in 2000, following the White vs White case. It was ruled that the courts must judge each case against the benchmark of a 50-50 split and justify anything else in their rulings.

But Mariza Lai Man-yin, writing on the Hong Kong Law Blog, cited a Women's Foundation report noting that 39 per cent out of 2012 divorcees still claimed they had received an unfair financial settlement.

Still, it was Hong Kong's relatively generous payouts that helped pave the way for the popularity of prenuptial agreements, which have also become increasingly prevalent in Hong Kong since 2010.

"People have really got on board with prenups since 2010 ... the awards are going to be much bigger here and, to avoid that and create a bit more certainty, prenuptial agreements are really popular here," says Caroline McNally, a partner and head of matrimonial at the law firm Gall.

Lawyers now encourage their clients to enter into prenuptial agreements, she says.

Well-publicised cases in the US show the bizarre side the marital contracts. In Britain and Hong Kong, however, they are rarely as lurid. "In the US, you'll come across clauses like who should be walking the dog during the marriage. The difference is that in certain states in the US you'll have prenups that go into detail about how people should behave during the marriage, which you wouldn't find in Hong Kong," Dearle says.

READ: Chinese city limits divorces to 15 a day to help troubled couples 'think again'

"In some US states, prenups can have infidelity clauses [which you wouldn't find here]." In Hong Kong they tend to be more cut-and-dry financial documents and are scrutinised by the courts for fairness. Outlandish prenups like those in the US simply wouldn't fly here, he says.

Rules governing where divorces proceed vary from country to country. In Hong Kong, the person bringing the case must establish a "substantial connection" to the city.

"If there's business here, usually if there's a property here, but they don't have to be permanently living here. It's got to be more than just popping over here for holidays and having a bank account," Dearle explains.

According to McNally, it is a bit stricter. "The courts have basically said that you have to prove that your lives are centred in Hong Kong. One thing that they will say is that if it becomes clear that you've just come to Hong Kong to get divorced, then you won't get over that hurdle," she says.

Still, the rules for substantial connection are sufficiently broad, Dearle says. "Most high-net-worth individuals in Asia will have something. They will have a substantial connection." Even McNally says that very few of the cases she has handled involve couples who are domiciled here.

It became easier in 2011 for spouses to seek a settlement in Hong Kong, even if their divorce had already been finalised in another jurisdiction. "What [the court] said is that they will allow you to make financial claims in Hong Kong after being divorced somewhere else," McNally says.

"So you can get divorced in China and the wife can come to Hong Kong, if she can get over the jurisdictional hurdle, then she can apply for financial relief in Hong Kong. In China there was often a very unfair result for the wife."

Dearle explains why disenfranchised spouses will still choose the Hong Kong divorce courts, event though awards are already determined in prenuptial agreements.

A lawyer must be empathetic, but they cross a line if they become sympathetic
CAROLINE MCNALLY, LAWYER

"The most important point is that in Hong Kong prenups are still not strictly binding but they are enforceable," he says, referring to the judgment in the June case his firm won. This means that, while in some US states prenuptial agreements are treated as law, in Hong Kong judges must examine the agreements and decide if they are fair.

If a prenup doesn't provide for the wife or children, for example, if will be thrown out. So, even with a prenup there are reasons to believe the fairest settlement will be reached in a Hong Kong court.

Even if prenups mean that awards may not be as high as before, they remain significantly higher than elsewhere in the region. Dearle says families' bankers are often "flabbergasted by the level of the awards".

"I do know that in comparison with courts in Indonesia, Singapore, Malaysia and Japan, for example, the courts here are more generous," says Dearle, who often advises clients to file in Hong Kong.

Dearle has worked on cases that "often run to hundreds of millions of US dollars" but, as McNally points out, in high-end divorces the negotiation is rarely truly about the money.

"In the big cases what people are fighting over is principle, it's about what people think is fair - $100 million versus $150 million is no different; it's way over what anyone needs. What it's about is what they think is fair in the context of their marriage.

"You have to have a lot of money to have principle because litigation is not cheap. We often joke with our clients that they don't have enough money to have principle," McNally says.

Even if prenups mean awards get smaller, Hong Kong still boasts the most fair and transparent court system in the region, McNally adds. "It's a sophisticated legal arena. You have very experienced specialist lawyers doing this work. You have a sophisticated court system, the judges are experienced and take matters seriously."

That experience can be vital because the biggest sticking point in high-worth divorces is often not dividing the assets, but determining what the assets are in the first place. The hiding of assets and other bad behaviour is relatively commonplace.

With so many emotions at play when couples break up, McNally often has to remind clients to think about how they will feel about their behaviour years down the line. "Was it really what was best for the children? It's not money, it's the emotions. They haven't accepted the marriage is over, or they're angry about a third party's involvement."

She says it is important for lawyers to remember their roles. "You do get your clients who offload on you. I've heard a million times people who say it's not fair ... when you're looking at what a lawyer should be doing, a lawyer needs to be empathetic to their client but they can cross a dangerous line if they become sympathetic."

Despite the emotionally taxing nature of the job, divorce lawyers continue to flock to Hong Kong. The city's reputation has lawyers in England excited. "There's a real buzz in London about working as a divorce lawyer in Hong Kong," McNally says.

"There's a lot of work. There have been people coming out from other jurisdictions to work here, and I think that's because they find it an exciting place to be," McNally says.