How to deal with debts between spouses in divorce proceedings?
Introduction: Spousal Debts in Hong Kong Divorce Proceedings
In Hong Kong divorce proceedings, a situation that often arises is that one of the spouses has incurred inter-spousal debts during the marriage for reasons such as managing assets on behalf of the other spouse or borrowing money from the other spouse. When divorce proceedings are initiated, the question of whether or not such a debt exists, and if so, the exact amount, may become a matter of dispute between the parties. Under such circumstances, should the issue of the couple’s previous debts be resolved in the context of divorce proceedings or should civil proceedings be instituted separately to resolve the issue?
Separation of Marital Property in Hong Kong
Under Hong Kong law, under common law and the Hong Kong Married Persons Status Ordinance, couples practise separation of matrimonial property after marriage, i.e. the property of one party and the property of the other party are separate during the marriage and do not form a community of matrimonial property as a result of the marriage. Therefore, if one party borrows money or owes debts to the other party during the marriage, such debts are protected by law and the party who is the creditor has the right to recover them from the other party.
Property Adjustment in Hong Kong Divorce Proceedings
Although matrimonial property is kept separate during the marriage, in Hong Kong divorce ancillary relief proceedings, the court has wide powers to take into account a variety of factors and adjust the property between the divorcing parties, ordering the divorcing party to pay the other party by way of a lump sum, or by periodical payments, or by way of an order for the transfer of the property, or by some other means. However, can the powers of the court in such ancillary relief for divorce property also cover the adjudication of disputes over the debts of the spouses during the marriage and the making of orders for the payment of such debts?
Resolving all financial disputes together in the Family Court as far as possible
In accordance with the legal principles established by the Court of Appeal in Chan Man Ki v Yau Chun For, CACV 9/2019, applying the case of Matz v Matz [1984] FLR 392, see items 4, 5 of the headnote to that decision, it is preferable to resolve all financial and property issues between husband and wife in a single court, i.e. the Family Court, by way of its wide-ranging discretion in ancillary relief proceedings. It is advisable to resolve all financial and property issues between spouses in one court, i.e. the Family Court, through its wide discretion in ancillary relief proceedings. Generally, the civil proceedings for debt recovery can be suspended pending the ancillary relief proceedings in the Family Court. If the Family Court decides that the property in dispute is matrimonial assets, the Family Court may decide how to deal with the disputed assets in accordance with the wide discretionary powers given to it under the MPPO. Conversely, if the Family Court decides that the assets are not matrimonial assets, a party may continue with civil proceedings to resolve the dispute after the matrimonial ancillary relief proceedings.
However, according to the legal principles established in Matz v Matz [1984] FLR 392, such a stay of civil proceedings to the Family Court must be subject to the fundamental condition and principle that it is not unfair to either party to the proceedings.
In Cheung Wing Kuen, Samuel v Ip Chui Sum [CACV452/2021], the court recognized on the one hand the legal principle in Chan Man Ki v Yau Chun For [2021] 2 HKLRD 366 at [53] that it is desirable to have all financial and property issues between husband and wife in one court, i.e. the Family Court. i.e. the Family Court, through its wide discretionary powers in ancillary relief proceedings. On the other hand, the court also recognized the recognition by Cumming-Bruce LJ in Matz v Matz [1984] FLR 392 that there is no legal principle of law which requires that when a couple are engaged in divorce ancillary relief proceedings, the other proceedings between the couple are as a matter of course transferred to the Family Court to be dealt with together. The question to be asked as to whether or not to proceed with a transfer is whether it is equitable and just to exercise the court’s discretion to stay the civil proceedings pending ancillary relief proceedings in the Family Court, taking into account all relevant circumstances (para 56).
Possible injustice: the limits of the Family Court’s powers
According to the judgement of Lit Wing Yee vs. Tang Cheuk Lun, HCA850/2016, paragraph 27, the court held that the purpose of the Family Court in dealing with ancillary relief proceedings is to deal with the financial resources and burdens of the parties in order to determine how to allocate assets. But dealing with ancillary relief does not relate to whether one party should owe the other a fiduciary duty in contract, tort or outside of marriage. The MPPO Ordinance does not give the Family Court the power to deal with a couple’s prior debts. Therefore, the Family Court has no power to require the other party to honor such debts, personal injuries or fiduciary duties unrelated to ancillary relief when making an order for ancillary relief. Consequently, it would be unfair to the creditor party if debts between husband and wife were not allowed to be dealt with separately in civil proceedings (as the judge of ancillary relief would not make an order for repayment of the debt).
In Chung Pui Tong v Qian Zhen [CACV 68/2020], at para 82, the court recognized that substantive title to deal with the property in dispute was not a necessary or integral part of the ancillary relief and that the court did not have the power to deal with debts of one party to a marriage to the other under the terms of the MPPO or with fiduciary duties outside the ancillary relief. The court also confirmed (at para 96) Chan Man Ki’s position at para 67 that if the family court is unable to deal with the transfer or conveyance of those assets under the authority of s 6 of the MPPO, the family court has no power to make an order for the return or compensation of the property, in which case a party would need to obtain relief by way of separate civil proceedings, as in Lit Wing Yee vs. Tang Cheuk Lun, HCA 850/2016.
In Lam Fung Sin v Lee Yuet Wing [DCCJ 212/2023], where a civil action was brought by the parties outside the ancillary relief proceedings in the Family Court in relation to the ownership of a premises in the woman’s name, the court held that both the civil action and the ancillary relief proceedings were at an early stage, and that where the court in the civil action had made a judgement as to the substantive ownership of the property, it was still subject to the same rules as The court held that the civil action and ancillary relief proceedings were both at an early stage and that a decision by the court on the substantive ownership of the property in the civil action would still be subject to further adjustments by the Family Court in the ancillary relief proceedings, and that it would be appropriate to stay the civil action pending a decision by the Family Court.
(Bob Yan, principal solicitor of Yan Lawyers, solicitors. Email: [email protected], Tel: +852 31881995, +86 15018939249, WhatsApp: +852 5103 9249)