Reflecting on 2019: The effects of an uncertain economy on divorce

2019 was a difficult year for many people globally but particularly for people living and working in Hong Kong. The end of 2019 saw an extreme disturbance in the daily lives of its citizens with many individuals not being able to go to work and function as normal. The year had already been challenging for Hong Kong with the political unrest culminating in great uncertainty economically, exacerbated globally with the trade war between China and the U.S. and further uncertainty caused by Brexit. Readers would agree that the year had been a choppy one, to say the least, for both the global economy and politics internationally, as well as the damaging effects of social tension in the city.

Political conflict may well cause division within families as a result of family members’ diverging political views, and this may impact the divorce rate itself. However, this article will examine the potential impact of the economy on the division of assets in divorce. The trends suggest that economic factors will affect low-income couples and high net worth couples who are extremely investment heavy, with medium-income families affected to a lesser degree. 

For families whose assets are investment heavy, a severe downturn in the economy will have a huge impact on the size of the family pot.  For example, landed property prices in Hong Kong have fallen as much as 20% during the past few months. If a family holds only landed properties as assets, which is not uncommon in Hong Kong, this family could have potentially lost 20% of its assets.

All businesses, including family-run entities, are suffering and the valuations which they may have achieved this time last year, could be drastically different this year. As a result, the capital value of marital assets will have decreased, as would the dividends from family-run companies and, increasingly, as the conflict continues, rental income from property portfolios.

This could severely alter a divorcing couple’s financial settlement as the available assets may not be sufficient for them to achieve a “clean break”, which is something the Courts, and most divorcing couples would prefer. 

Although there is no duty from the Hong Kong courts to ensure a clean break, it will try to make such an order when there are sufficient funds available to guarantee both parties exit their marriage with enough financial security for the future. This will involve the assessment of all assets and income owned by the couple in any location, either solely or jointly. High net worth individuals residing in Hong Kong typically have assets all over the world which may mitigate the situation to a degree. However, often, in order to achieve a clean break, there will be an assessment of what the financially weaker party might need on a monthly basis going forward, a capitalized sum, which is assessed into a lump sum payment. Whereas this is often considered fair and manageable, the result will often be that one party has a cash lump sum and the other has illiquid assets. In an economic environment of dramatic flux, such as now, this can create an unfair situation. The duty of the court is to find a fair solution for both parties.

There have been cases in the Hong Kong courts during the financial crisis in 2008 where one party was left with illiquid assets and the other had a cash lump sum. The court was not able to change the order which had been made, because it is not possible for the court to vary a lump sum (the terms of payment may be varied but not the amount itself). Therefore it could be that one party was 'stuck' with investments which had decreased in value and the other had flexible capital. The parties may have settled that it would be fair to divide the marital pot 50/50 but by the time the assets come to be divided, one party is, in reality, receiving considerably more.

Increasingly, rather than settling for a clean break and allowing both parties to live independently from each other, the settlement will involve a monthly maintenance payment. Monthly maintenance payments can be varied if there is a change in circumstances for either of the parties, such as the loss of employment or the loss of dividends, which either renders paying maintenance more difficult or results in a greater need to receive maintenance.

Therefore, in times of financial uncertainty, careful consideration of what is a secure settlement when balancing liquid and illiquid assets is required. It might also be more appropriate to use maintenance payments during this period rather than settle with a clean break. With this in mind, it is unsurprising that high net worth couples are looking to protect their assets by putting the divorce on hold until the global economy and politics at home stabilize.

Partner, Withersworldwide

Billy is a partner in the family and media & reputation team. Billy’s practice is varied and covers family law, civil litigation and media law issues.

Professional Support Lawyer, Withers Khattarwong

Philippa is a professional support lawyer in the divorce and family. She is a matrimonial lawyer dealing with all aspects of family law, information management, legal writing and publications.