GWA v. GSM also known as NSM

FCMC 11605/2019

[2022] HKFC 176

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 11605 OF 2019

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J U D G M E N T

(Ancillary Relief)

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1.  This is an ancillary relief trial held in the absence of the Respondent Wife.

2.  For the purpose of this Judgment, the Petitioner and the Respondent shall be referred to as Husband (“H”) and Wife (“W”) respectively.

Background

3.  H is now 51 years of age; the W is 52.  The parties were married on XX May 1993 in the US Virgin Islands.

4.  H is self-employed, and acts as a consultant of his own company H Limited, which provides consulting, trading, and product development service.  W was a housewife during the marriage but has recently provided information that she now works as a clerk in Costco Wholesale in Illinois US, where she lives.

5.  There are two children born in wedlock, a daughter who is now 26 and a son 24.  Both had completed full time education and are financially independent.

6.  According to H, the parties separated in May 2011.  W left Taiwan which was where H was working at the time to live in the US with the children, and has been living there since. H went to work in China, then subsequently Hong Kong, where he has been living since 2013. W contested the date of separation and stated that the parties only separated in November 2015; and that in between they had spent time as a couple when H went to the US or spent holidays as a family in other parts of the world.

7.  The Petition dated 26 September 2019 was based on 2-years separation.  Decree Nisi was pronounced on 4 June 2020.

8.  H had attempted to settle the matter by way of mediation, but W only engaged briefly and had stopped since March 2020.

9.  Decree Absolute was pronounced on 20 July 2020.

10.  H had then on 3 March 2021 tried to finalize the proceedings by asking the Court for an Unless Order for W to apply for ancillary relief.  W faxed a note to Court which was received on the date of the direction hearing of that Summons, stating therein that she had in fact applied for ancillary relief, and claimed to have sent the form a year ago; alongside the fax was another freshly signed Form A.  The Court on 11 June 2021 made an Order for Form Es to be filed, and that should W fail to do so, the hearing for the ancillary relief would be set down for trial.  W did not file her Form E by the deadline given.

11.  The Trial date was set down for 20 January 2022, but was adjourned to 6 June 2022 due to issue on service. 

H’s case

12.  After W’s departure for the US with the children, H initially moved to Shenzhen, and then to HK in September 2013.

13.  H said that the separation date was 2011, and claimed that “separation takes time”, he said that the relationship broke down in 2011 but as he still wanted to see the children, the “complete breakdown” was in 2015.

14.  H also said that he had been giving W an average amount of $48,000 per month for expenses (most of which for the children’s education) until this ceased in March 2020 by mutual agreement.  He therefore alleged that she has been “self sufficient for nearly two years”, and hence indicative that she has the ability to provide for herself.  Through online information he obtained from the LinkedIn platform, H noted that W has a managerial position at Costco.

15.  According to the H’s evidence, he purchased H Limited as a shelf company in HK in August 2011.  From then till August 2013, it was used by him to provide consultancy service for one client in China, and held no assets.

16.  From August 2013, H started his job as President of TSS in HK.  He left this position in August 2016 and reactivated H Limited in January 2017 for the purpose of his current business as an “agent / consultant” for product development and production in Asian factories, which he conducted till now.

17.  H contends that H Limited is non-marital, as its value accrued post separation since 2017; and should be excluded from the matrimonial pot.

W’s case

18.  W had not engaged in these proceedings in any meaningful way; she had not filed evidence, nor filed her Form E when ordered to do so on 11 June 2021. 

19.  W’s email received on the day of this Hearing was the first and only time that she had written substantively regarding this divorce.  This email  did not come in as an affirmation and therefore is not evidence before the court.  However, I decided to accept her email as a submission for this ancillary relief hearing.

20.  She contested the date of separation.  While acknowledging that she did move out of Taiwan with the children in 2011, she is of the view that they did not separate until 2015. 

21.  W had looked after the children when H was working overseas, and she also said she had supported him through his change of companies although H was away a lot working.  She also said that she had been silent over these proceedings because she was hurt over H’s divorce petition, and the way that he had misled her that they were still a family from 2011 to 2015.

22.  W obtained a degree in Bachelor of Science in Management at a university in the US.  H did say this was in 2012.

23.  Contrary to what the H alleges, W said she is only a clerk working at Costco.  She started with a part-time job but now has a full-time position making USD27.95/hour.  Over the past 7 months, she said that her total take home pay was actually USD14,201, which came to approximately USD2,000/month.  She did not provide a breakdown as to how this number came about, nor did she provide documentary evidence.  

24.  In her email, nothing was said of the family assets except that if the matrimonial home in Illinois (“US Property”) is ordered to be sold then she would need time to do it.

25.  It is of note that she also said she would “obey any ruling that will come down”.

Absence of the W to these proceeding

26.  As W was residing in the US, service of documents was done through a US service agent from the beginning of the proceedings.  There were three Affidavits of Service by the same US service agent with the following dates:

(i)  7 October 2019 of the Petition and related documents;

(ii)  31 March 2021 of the Petitioner’s Summons and Affidavit for an Unless Order for W to file application for financial relief; and

(iii)  10 May 2022 for Court Orders, Trial bundles, H’s opening submissions and statement of open proposals, and H’s 3^rd and 4^th affidavits.

27.  There were also various Affidavits of Service by employees of the H’s legal representatives of court documents by prepaid airmail and emails sent to W. 

28.  I am satisfied that W has been kept apprised of the progress of these proceedings.  This is clear also from the fact that W did briefly engaged in correspondences with the mediator in early 2020 and her last email to Court.

H’s Open Proposal

29.  H prepared an updated schedule of assets for the purpose of the trial.  This consists of the following:

Joint
US Property (less mortgage of HK$1,981,536)	HK$3,367,224
Chase Bank account (as of 15.7.2021)	HK$ 46,823
Charles Schwab Securities account	HK$1,080,539
	HK$4,494,586
Assets in his own name
Property at Lyndhurst Terrace (less mortgage)	HK2,544,577	Non - matrimonial
HSBC account	HK$419,236
Shareholding in H Limited	HK$5,383,942	Non - matrimonial
Shareholding in N Auto Imports Limited	HK$0	Non - matrimonial
MPF	HK$321,038
Individual Retirement Account (“IRA”) Charles Schwab	HK$251,203
	HK$8,920,106
Asset’s in W’s name
(To H’s knowledge)	HK$100,000

30.  There is no information from W on the value of her assets.   Based on the H’s knowledge, he puts it at HK$100,000.

31.  Regarding these numbers, H also had the following to say:

-  H claimed that H Limited is post-separation and non marital, as it was reactivated in 2017, and developed to what it is today through H’s sole efforts.   

-  N Auto Limited, incorporated in January 2022, is a business which he co-owns with his son.  A company incorporation form has been attached to a letter dated 17 May 2022 to W.  H attributes no value to the company, and states that the only starting funds the company has is a loan from H Limited.  He said that this company is also post-separation and non marital.

-  H was not able to access the Chase Manhattan bank account as he claimed to have been blocked from access on the internet by W.  He is not able to get an updated balance of the account unless he goes in person to the specific bank branch in the US, which is why the value of the account was for July 2021.

-  H used money from “saving accumulated from the marriage” to purchase a boat and mooring in 2015, this was where he resided until January 2021; the boat and the mooring was sold for $1,920,000 in May 2021, the proceeds of which was used to purchase his current residence.  H has proposed to add back HK$1,920,000 into the matrimonial pot.

-  H therefore claimed that his own current residence is post- separation, as he purchased this in October 2021.

32.  Taking into account these factors, this brings the total matrimonial pot on H’s assessment to the following:

Assets of parties
Joint	HK$4,494,586
H	HK$8,920,106
W	HK$100,000
		HK$13,514,692
Less H’s claim of non-matrimonial assets – H’s property	HK$2,544,577
Less H’s claim of non-matrimonial assets – H Limited	HK$5,383,942
		HK$5,586,173
Add back (boat and mooring)	HK$1,920,000
TOTAL MATRIMONIAL POT		HK$7,506,173

33.  According to H’s open proposal, W shall receive:

1.  H’s share in the US Property.  Either by transferring his share to W subject to mortgage, or to be sold, upon which the W shall receive all of the proceeds.

2.  H’s share in the Chase Bank account.

3.  H’s share in the Charles Schwab Securities account (which shall be applied towards the discharge of the mortgage over the US property if the mortgagee bank does not consent to a transfer subject to the mortgage, or where the mortgagee bank so consents, be fully paid to W).

4.  H’s share in the IRA.

5.  W to retain all her personal assets.

34.  He then proposed that he shall retain all the other assets in his name including H Limited, and that there shall be a clean break, with no order as to cost.

35.  The above proposed assets for W come up to a value of HK$4,845,789, which constitutes 64.55% of the matrimonial pot based on the H’s calculation.

Issues to be determined

Time of Separation

36.  This is a long marriage.  Taking the parties’ respective case on point, this is either 18 years or 23 years up to the time of separation; no evidence is put before the court in support of this different view point, nor had parties make this divergence of views relevant to the division of matrimonial assets.

37.  From the marriage to the time of the hearing, it has been 29 years.  I am of the view that this dispute as to the time of separation of the parties will not have any impact on my decision for ancillary relief.

Is H Limited post-separation asset?

38.  H’s counsel has drawn my attention to two seminal cases on post separation accrual of assets.  These are Rossi v Rossi [2006] EWHC 1482 (Fam) and JL v SL (No. 2 ) (Appeal : Non Matrimonial Property) [2015] EWHC 360 (Fam),  both judgments were from Mostyn J. 

39.  I will quote some relevant excerpts.  The following from Rossi:

“[24.3] Assets acquired or created by one party after (or during a period of) separation may qualify as non-matrimonial property if it can be said that the property in question was acquired or created by a party by virtue of his personal industry and not by use (other than incidental use) of an asset which has been created during the marriage and in respect of which the other party can validly assert an unascertained share.”

40.  And from the case of JL v SL, in relation to looking at the relevant period:

“[20] For obvious reasons the span of the partnership is looked at defacto and not dejure. It is not looked at from the date of the marriage to the date of decree absolute. Rather it is measured from when the cohabitation began on a permanent basis until the date of separation.”

….

“[42] On the other hand there will be cases where the post separation accrual relates to a truly new venture which has no connection to the marital partnership or to the assets of the partnership. In such a case the post separation accrual should be designated as non-matrimonial and save in a very rare case should not be shared.”

41.  It is H’s submission that H Limited is to be excluded from the matrimonial pot as it is non-matrimonial; that the value of the company has accrued solely as a result of H’s endeavours post-separation; and this is not a case which falls into a rare category of cases where non-matrimonial or post- separation accrual should be shared.

42.  There are two relevant periods:

1.  From 2011-2013:  H claims that H Limited was used by him to service only one client in China.  Thereafter, he went into employment with TSS from August 2013 till end of 2016.  Therefore, even if H Limited operated within the duration of the marriage (with W’s separation date in mind), it had come to an end when H joined TSS.

2.  From 2017 to now: H claims the H Limited today came from the reactivation in January 2017, and he alone contributes to the business over the years since then.  This is 6 years after H’s separation date, and 2 years after the W’s separation date.

43.  At the hearing, H said that he did not discuss his business with W, so it came as no surprise that she was not able to add more to these timing and the operation of H Limited.  However, from the email, it is clear that W is aware of the H’s intervening employment with TSS.

44.  H also adopted into evidence in Court the audited statements for H Limited for year-end 2018, 2019, 2020 and 2021.  Looking at these audited statements, it does appear that the operation of H Limited was relatively small in 2017 but took an upward increase in turnover and net profits since 2018, this accords with the H’s version of events that the business was built by him since early 2017.

45.  I have no evidence before me that contradicts H’s position. I therefore accept that the business in H Limited was post-separation efforts on H’s part, and is not to be taken into account for calculation of the matrimonial pot.

Absence of one party to the proceedings

46.  H’s counsel has helpfully provided some case law on this.  I agree that the Court should not shy away from proceeding with the final determination of the ancillary relief even when one of the parties is absent at trial.   In this case, W is fully aware that the case has been set down for trial despite no information had been provided by her.

47.  However, contrary to H’s counsel’s argument, I do not think that this case is one of “lack of full and frank disclosure” by W whereupon adverse inference needs to be drawn against her.  While it is true that there is no disclosure of financials on her part, I am not of the view that W has deliberately chosen to hide her finances from H.  Indeed, I do not think this is H’s case.  W has chosen not to engage in the proceedings at all but had said at the very end, that she would accept what the Court decides.

48.  In the case of SLA nee S v HKL [2013] HKFLR 445, DDJ Carlson (as he then was), proceeded with a scheduled ancillary relief trial despite the non-appearance of H at trial, at paragraph 3 therein,

“I have never before encountered a case where one party has decided not to appear at the final hearing. Whilst this has played into the wife’s favour because she is unopposed, the inquisitorial aspects of an application such as this have not relieved me of the obligation to ensure that I am satisfied, on a balance of probabilities, about the existence of assets that are said to be available for distributions between the parties and, in any event (even with absent husband) S 7 MPPO needs to be gone through and applied by me in arriving at a just conclusion. This has not been a case of just taking the wife’s case at face value. If anything, my task has been made more difficult by the husband’s absence.”

49.  In that case it was the payor of the ancillary relief who did not appear; it is distinguishable from the one at hand, where it is the payee who has not appeared.  My task is no less difficult with the lack of information of the assets of the W, nor that of her needs.

50.  Furthermore, with regard to the assessment of the value of the assets, DDJ Carlson (as he then was) said this at paragraph 20 of the Judgement,

“I need to approach my findings on what should be included as assets on a realistic basis and, as best I can, based on amounts that are reasonably likely to be accurate. Provided the particular amount of an included asset is within a reasonable approximation likely to be accurate then I am afraid that the husband will have to bear the consequences of his non-appearance. He cannot be heard to say that this is all wrong if he has chosen not to come along and say so, or putting it in another way, helping the court to carry out its task on as precise a basis as it would wish to. And, I must also have regard to the wife’s position. She must not be seen to suffer because of the husband’s no appearance. If what is put forward on her behalf appears, in all the circumstances, to be reasonable then it ought to be acted upon.”

51.  I have also been referred to the case of Moher v Moher [2020] 1 FLR 225, in which Moylan J gave the following guidance:

“When faced with uncertainty consequent on one party’s non-disclosure, in appropriate cases, the Court was entitled to infer that the resources were sufficient or were such that the proposed award did represent a fair outcome.  That approach was both necessary and justified to limit the scope for a “cheat’s charter”.  That did not mean that the Court should jump to conclusions as to the extent of undisclosed wealth simply because of some non-disclosure, but it had to be astute to ensure that the non-discloser did not obtain a better outcome than that which would have been ordered if they had complied with their disclosure obligations.”

52.  I am in agreement that H needs to move on with his life and his proposal to W will be considered in the light of guidance from the abovementioned case law.

Wife’s conduct

53.  Other than H’s allegations of the W’s lack of full and frank disclosure, it was submitted that W had prevented H from obtaining information on joint assets in the US as she had allegedly unilaterally changed the online access for the information.  H’s counsel has called this a “deliberate financial obfuscation” and invited the Court to draw adverse inferences against W for such conduct.  In her closing submission, H’s counsel has continued with allegations of W’s misconduct of non-compliance of court orders and hindering court’s proceedings. 

54.  But draw adverse inferences to what end?  With the H’s knowledge of her background and financial situation, it is not H’s case that she is hiding any assets so I am unable to attribute additional financial resources to her.  Or should I make an order of costs against W? H is not asking for costs, and I am inclined to accept this position as good faith on H’s part.

Other non-matrimonial assets

55.  For the avoidance of doubt, I also accept that H’s current residence, purchased only in 2021; and N Auto Limited, incorporated only early this year are not to be included into the matrimonial pot.

The Applicable Law & Legal Principles

56.  Section 7 of the Matrimonial Proceedings and Property Ordinance (“MPPO”), Cap 192 sets out the matters that the court must have regard to when making orders for ancillary relief:

“(1) It shall be the duty of the court in deciding whether to exercise its powers under section 4, 6 or 6A in relation to a party to the marriage and, if so, in what manner, to have regard to the conduct of the parties and all the circumstances of the case including the following matters, that is to say-

(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;

(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c) the standard of living enjoyed by the family before the breakdown of the marriage;

(d) the age of each party to the marriage and the duration of the marriage;

(e) any physical or mental disability of either of the parties to the marriage;

(f) the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

(g) in the case of proceedings for divorce or nullity of marriage, the value to either of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.

57.  The Court of Final Appeal in its landmark judgment of LKW v DD [2010] 13 HKCFAR 537 has laid down a 5-step approach in assessing the division of the parties’ matrimonial assets:

(1)  to identify the assets at the date of the trial;

(2)  to assess the financial needs of the parties;

(3)  to consider whether the sharing principle is to be applied;

(4)  to consider whether there is/are good reasons for departing from the principle of equal division;

(5)  to decide the outcome.

58.  Which are to be considered against 4 guiding principles, namely:

(i)    objective of fairness,

(ii)   rejection of sex or role discrimination,

(iii)  yardstick of equal division, and

(iv)  rejection of minute retrospective investigation.

Identifying the Matrimonial Assets

59.  Under this heading, Mr Justice Ribeiro PJ’s guidance is to consider the financial resources of the parties, with reference to s.7(1)(a) of the MPPO.

60.  For reasons above mentioned, I accept that the assets in the family matrimonial pot is as presented by H in paragraph 32 above. 

61.  H’s case is that he will continue to be self-employed, his counsel submits that he intends to only retire at age 65.  His income will be generated from H Limited, and possibly his new venture with his son from N Auto Limited.

62.  W had been a mother and home carer during the course of the marriage.  Her email stated that she started a part-time job 5 years ago, and this has now become a full-time role. As mentioned above and accordingly to her, her average take home monthly income for the last 7 months was USD2,000.   At her age, it is reasonable to assume that she could continue with this job in the reasonable future.   H has also submitted that she had not asked for financial support from him since March 2020, and that W is likely to have a pension in the US although no detail is available before the Court.  W said that she had also obtained a business degree when the parties were separated; this should go some way to assist her in her work opportunities.

Financial Needs of the W

63.  This is difficult to assess without any input from W as to her needs. 

64.  She had devoted her married life to be a wife and mother to the family.  Since 2011, she has lived in the US Property and H gave her monthly sums for expenses.  H also said that they were not members of clubs, but there had been family trips though not extravagant ones, in which they flew on economy class and stayed at 3-4 star hotels.

65.  I am of the view that in a case such as this, one needs to apply a common sense approach to consider the needs of a 52 year-old woman whose children are now both adults and independent. I turn to H’s final submission in this regard.  At the end of the hearing, I have asked H’s counsel to provide me with some basis as to how W could fund the mortgage of the US Property by herself.

66.  Under H’s proposal, she will become the sole owner of the US Property she is now residing in.  This is a house of almost 3000 square feet with three bedrooms, valued at approximate USD 685,738 with a mortgage.  She will have a few options with this property. She can continue to service the mortgage from liquid funds from the US accounts to be transferred to her under H’s proposal, and have some time to decide whether she wants to keep the property, or wait for an appropriate time to put it on the market.  She can also sell this property as soon as practicable and find alternative accommodation of a smaller size, as the children are now adults and self-supporting, and no longer residing with her; there will be balance from the net proceeds which can serve her longer-term use.

67.  H had also contended that W has been managing the mortgage of the property by herself since March 2020, this amount is US$2,925 per month.  On H’s counsel calculation of W’s income, she had taken it to a high level of US$27.95/ hour x 8 hours a day x 5 days a week x 52 weeks, giving her an annual gross income of US$58,136 and US$4,845 per month.  While I have no evidence that she works to such an extent, income in the US is usually taken net of income tax withheld by the government, so her take home pay would be less than this amount even if she works to the fullest.

68.  However, with her current earning capacity, a likely US pension, and accommodation options, I am of the view that her needs should be adequately met from H’s proposals.

Financial needs of the H

69.  He had declared an average income of HK$130,000 inclusive of bonus in his Form E dated July 2021. Since that date he had purchased his own residence, and is servicing the mortgage thereon.

70.  Looking at his expenses, I am satisfied that the on-going needs of H are secured based on his income, his earning capacity and his property.

Needs vs Sharing

71.  As I am not able to accurately consider the W’s needs due to the lack of evidence, I have reverse-engineered H’s proposal to test it against what I perceive to be her needs. I am of the view that, on a balance of probabilities, her needs would be satisfied from the proposal made by H.  To cross check the numbers against the matrimonial pot, H’s offer constitutes 64.55% thereof.

Departing from Equal Division

72.  The starting point is a 50/50 division of the matrimonial pot.  Considering the long duration of the marriage, and the sharing of responsibilities and contributions to the family, this starting position is well justified.  There are no other factors that would need to be considered for departing from equal division in the wife’s favour except that this is what H is offering to her.

Deciding the Outcome

73.  H’s counsel has rightly pointed out that while W is fully apprised of the proceedings, she had not disputed the figures in H’s asset schedule, nor counteroffered on his proposal. 

74.  In the light of the circumstances of the case and with the evidence available before me, I accept H’s proposal to be fair and reasonable.

75.  I also confirm his proposal that both parties should keep assets in their own name, with a view to a clean break.

Orders

76.  In summary, I make the following orders:

(i)    H to transfer his 50% legal and beneficial interest in the US Property to W within 42 days;

(ii)   H shall cease to be a joint account owner of the US accounts, namely the Chase Savings Account and the Charles Schwab securities account with the intention that W shall become 100% owner of the funds in these two accounts, or H is to facilitate the transfer of his 50% interests in these two accounts to W; within 35 days;

(iii)  H to transfer all the funds in his Individual Retirement Account to W within 35 days;

(iv)  H to bear the costs of transfer of the above assets in para (i) – (iii) herein, including the payment of any tax liabilities;

(v)   Liberty to apply with regard to enforcement of this Order;

(vi)  There shall be no order as to costs, which shall be a costs order nisi to be made absolute within 14 days.