The firm says that wealthy individuals in Hong Kong may be unknowingly at risk of losing millions of dollars in trust assets due to a financial family law judgment in March this year.
The DD versus LKW case on March 5, in which the judge ruled that a 50/50 split of assets between divorcing husbands and wives must be the norm, is considered to be the most significant divorce case in decades, moving rulings away from the previous ôreasonable requirementsö principle and in line with UK rulings.
However, the law firm says that many people may be unaware that Hong KongÆs new divorce principle can encompass assets held in trust, wrongly assuming that such trusts are untouchable when it comes to divorce rulings, says Marcus Dearle, a London-based partner in WithersÆ family law team, who was in Hong Kong last week to present at a Withers industry briefing.
ôThe court has effectively massively increased the potential claims of the economically weaker party in big money and ultra-high-net-worth cases,ö says Dearle. ôThere is going to be a big increase in divorce cases as a direct result of this judgment, where assets built up before, during and after a marriage are going to be attacked by the economically weaker spouse.ö
In Hong Kong and England, the terms of a trust can be varied by the court in favour of a divorcing spouse, so if a spouse is not already a beneficiary of the trust, he or she can be made a beneficiary whether their partner likes it or not.
Dearle says, however, that this is only possible if there is a ônuptial elementö to the settlement, meaning that there has to be a connection between the settlement and marriage.
It is imperative that trust deeds are carefully drafted, if the trustee wants to protect their trust assets, warns Withers. One way to increase protection is to establish a prenuptial agreement prior to marriage.
ôWe would usually recommend our clients sign prenuptial agreements when there is a huge disparity in the level of assets, however, it is important for people to understand that in Hong Kong, like in England, these agreements are not legally binding,ö says Dearle. ôWhile Hong Kong courts will take a prenuptial agreement into consideration when making a ruling, they have the right to overrule the agreed upon terms if they deem the agreement to be unfair.ö
England is under increasing pressure to make prenuptial agreements legally binding, as is the case in the United States, and the Netherlands. If this occurs, it is expected that Hong Kong will follow suit.
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