AT v. NCT

FCMC 5810 / 2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 5810 OF 2015

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J U D G M E N T
(Maintenance pending suit)

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Introduction

1.  This is an application by a Petitioner wife for maintenance pending suit pursuant to section 3 of the Matrimonial Proceedings and Property Ordinance Cap 192 (MPPO,

2.  In addition to the main issue concerning the level of maintenance to be paid on an interim basis there are also a number of subsidiary matters to be determined in this case. These include the credibility of the husband’s assertions with respect to his credit card expenditure, his actual tax liability and the reason for him taking out a number of substantial bank loans post separation. In addition there are other related matters to be determined, which are not really relevant to a maintenance pending suit application. These include the weight to be attached to an agreement entered into by the parties prior to the wife returning to the States, the earning capacity of the wife, her health condition and whether or not the A Trust should be included in part or in whole in the “matrimonial pot”. There are also likely to be related arguments with respect to possible pre marital assets and whether or not the wife’s son is a “child of the family”.     

Background 

3.  The parties married on the XX August 2005. It was the second marriage for both of them. The husband has two children by his first marriage – a girl and a boy and the wife also has one son, who is currently attending university in the States. The parties are both in their mid 50’s and they relocated to Hong Kong in 2012 when the husband was offered an academic position in the territory. The wife also works in academia, but has always held less prestigious posts and has been correspondingly paid less.

4.  In February 2014 the marriage broke down amidst accusations by the wife that the husband had formed an extra marital relationship with a third party – something that he still strenuously denies. In any event the wife moved out of the former matrimonial home and she decided to return to the States, which is where the parties had been living prior to their relocation to Hong Kong. However prior to her leaving the parties entered into an agreement, dated the 27 March 2014, which was signed before a Commissioner of Oaths in which the husband agreed to pay the wife maintenance of US$12,000 per month after tax during the period of separation. From the date of the dissolution of the marriage he further agreed to increase this sum to US$15,000 per month and to pay this amount until his retirement at the age of 65. There was also a further agreement namely that the wife would receive 50% of the husband’s retirement funds. Following the signing of this document the wife returned to live in the States.

5.  The husband continued to pay the US$12,000 per month until August 2015 when he unilaterally reduced this sum to US$6,000 per month. In his solicitors letter dated the 4 September 2015 he said that the reason for this was as follows:

      As pointed out in the Form E, since your client has been living in an extravagance style and indulging in high standard of living for the past years, our client raised substantial loans to support this extravagance lifestyle living.  As a result, our client is liable to repay various loans as stated in clause 2…3 of the said Form E.  Hence, our client has to reduce the monthly maintenance to your client in the sum of US$6,000 with effect from 1/9/2015 due to the financial difficulty encountered by our client.

6.  In addition the husband issued proceedings in the States in order to prevent the wife from disposing of certain pieces of artwork. The wife maintains that this was wholly unnecessary, that the items in question were not worth very much in any event and that the husband had over reacted. She says that he should simply have asked her for an undertaking and that she would have been happy to oblige.

7.  In any event the point to note is that the parties are engaged in acrimonious and costly proceedings which will only serve to deplete the party’s limited assets further, unless a more sensible approach is adopted going forward.     

The law

Maintenance pending suit

8.  Turning next to the law - the law is generally well known and not in dispute. Section 3 MPPO Cap192 states that the only governing principle is that the court shall make such order as it considers reasonable in all of the circumstances of the case. Consequently applications such as these are approached on a broad-brush basis. A detailed examination of the parties’ means may be examined at a later date at a full ancillary relief hearing if there is no agreement in the meantime, when there is then every opportunity to achieve fairness by means of set off. In other words, if there is any overpayment or underpayment that can normally be rectified at a final ancillary relief hearing.

9.  To quote Rayden

what really matters is the immediate and reasonable requirements of the wife balanced against the ability of the husband to pay for them, assessed using a broad-brush approach. (See paragraphs 16.17 of Rayden, 18^th edition).

Further

In practice, as oral evidence is rarely given, it will be unusual for the court on an application for maintenance pending suit to be in a position to make findings of fact on issues in dispute sufficient, for example, to deal with conduct or allegations of non disclosure.  However, if it is demonstrated that the paying party has not performed his duty to make full and frank disclosure of his financial resources, then the court can take a broad and robust view of his means, and it does not have to accept and proceed on the basis of the assertions of the paying party as to his means and an inability to pay.  The court can look at the reality of the situation …… “(Ref paragraphs 16.18 of Rayden, 18^th edition).

10.  Both counsel also referred me to the guiding principles set out in the Court of Appeal decision HJFG v KCY [2012] 1 HKLRD 95. To paraphrase, this states inter alia that the court in dealing with a maintenance pending suit application:

(a)  applies the sole criterion of “reasonableness” which is synonymous with “fairness”;

(b)  has an unfettered discretion to award a reasonable sum;

(c)  should be guided by the standard enjoyed by the parties during the marriage;

(d)  should adopt the standard of this family and not any other families.  What appears to be reasonable for an ultra-rich family, is perhaps very generous or extravagant for an ordinary family;

(e)  should consider the actual needs of the parties;

(f)  is not engaged upon findings of facts and will adopt a broad brush rather than a fine sabre;

(g)  is empowered to draw adverse inferences against the party who has failed to make full and frank disclosure and is not bound by the assertions of the parties;

(h)  should still examine the monthly budget;

(i)  bears in mind that adjustment can be made at the final ancillary relief.

(j)  Where the affidavit or Form E disclosure by the payer is obviously deficient, the court should not hesitate to make robust assumptions about his ability to pay.  The court is not confined to the mere say-so of the payer as to the extent of his income or resources. In such a situation, the court should err in favour of the payee.

11.  In addition reference can also be made to paragraph 3.92 of Jackson’s Matrimonial Finance 9^th edition where it states as follows:

When a party applies for an order for maintenance pending suit or for periodical payments, it is not a complete answer to the claim for the potential payer to say: ‘I have no income and no assets’.  In one case, a husband with a very small income (in three successive years it was £42, £69, £60) who asserted that he was ‘living on borrowed money and staving off a number of creditors while he [was] developing certain properties’, was nevertheless shown to have maintained by means of bank loans a consistent standard of living over a substantial period: the court in effect held that if he could borrow for himself he must likewise borrow for his wife.  The principle was that he was able to touch resources from which payments could be made; he had the ability to obtain the necessary money, albeit bank loans, and it was assumed that his ventures were such as not only to justify the loans but also reasonably to contemplate their repayment in due course ….

12.  With respect, although I was not specifically addressed on this point, it seems to me that this should also be borne in mind in the context of this particular case.  

How much maintenance should the husband pay to the wife as maintenance pending suit?

13.  The husband’s case is that he was forced to sign the financial agreement and that he made a mistake when he did so; he says that he had not appreciated that he would not be able to afford to pay the level of maintenance agreed. He also says that because the general cost of living is higher in Hong Kong than in the States that he “incurred hefty credit card bills to try to maintain the standard of living we previously had, but at a higher cost”. He maintains that he had to take out substantial loans in order to pay off the credit card bills and in order to meet his tax liability in both Hong Kong and the States. He maintains that he is obliged to pay tax in the United States at the maximum level of 39.6%. He also says that he is currently paying US tax for 2014 by instalments. He has a number of loans including a personal loan with Bank of East Asia for HK$900,000, which was repaid in February and a further loan with an organisation called The T Services Limited which he has recently increased by a further HK$600,000. The original loan was for HK$1 million. There are also smaller loans including HK$280,000 with HSBC and a loan with his mother for just under US$60,000.  

The husband’s credit card expenses and tax liability

Credit cards

14.  As will be seen the difficulty is that the husband has not come up to proof with respect to his assertions concerning his credit card expenditure and the loans. There are also concerns with respect to his stated tax liability. The husband had not provided copies of his credit card statements for the hearing despite having been ordered to do so previously and consequently he was ordered to produce them within 7 days following the hearing. The statements were received on the 3 March 2016. I have therefore only had an opportunity to peruse these statements post the hearing.  

HSBC Visa Platinum card   

15.  Copies of statements were produced from March 2014, which is around about the time that the parties separated. This card was used by both parties until the wife left Hong Kong. There is no expenditure on this card by the wife at all after May 2014. It shows an outstanding balance of just over HK$140,000 as at April 2014. The husband then appears to have stopped using the card save for regular payments for phones and related expenditure. He appears to be paying off the balance by regular small payments.

Chase

16.  Copies of statements were produced from July 2014. This is both a credit card and bank account and it appears to only be used by the husband. Apart from a payment of just over US$45,000 made in August 2014 the card appears to be used from time to time by the husband when he is in the States and it usually maintains an outstanding balance of somewhere in the region of US$10,000 – US$12,000. Regular small payments are made and the credit card expenditure and repayments appear to be under control.

BEA World Mastercard

17.  Copies of statements were produced from July 2014. These show regular payments by the husband in Hong Kong for general monthly expenses such as items for grocery shopping (ParkNShop, Taste, Market Place etc) and the chemist. In addition the husband has used this card to pay for small items of jewellery and for clothes at Kent & Curwen. The expenditure is not overly extravagant and he makes regular monthly repayments. Regular payments of between HK$7,000 – HK$18,000 are made each month, the higher payments generally being for two months at a time. There is very little if anything outstanding on this card.

At & t Universal card

18.  This card is rarely used. As at August 2014 it had an outstanding balance of just over US$18,000 and the husband appears to be paying this off slowly. Thus although this card’s expenditure may have been accumulated during the marriage given that it has not been paid off it is hard to see how the expenditure on this card can go to support the husband’s case.

American Express 

19.  The Amex card is barely used and tends to record payment for things like Netflix and Itunes.    

20.  In conclusion then the credit card statements do not go to support the husband’s case that the credit card expenditure was out of control and that he needed to borrow in order to pay off the credit card debt. There is nothing here at all to support this assertion. In the event that the husband decides to pursue this line of argument then I will expect to see copies of all bank and credit card statements for the year before the separation, prior to the FDR hearing. 

Tax liability   

21.  Similarly the husband does not wholly come up to proof with respect to the assertions made by him with respect to his tax liability. It is accepted that as a US citizen the husband is required to pay both Hong Kong and US tax. The Hong Kong tax is generally paid first and the husband is the required to pay the balance to the US authorities – in other words the Hong Kong tax is deducted from his US tax liability. There is though no evidence to support the husband’s case that he is actually paying 39.6% tax in the US. Even if that were the case there is also no evidence to show that in reality he has paid anything like that sum to the US authorities to date. The husband claims that he has to pay HK$114,455 per month in tax. However the evidence shows that he is paying a good deal less than that – although it would be fair to say that the situation is far from clear. In so far as evidence of actual payment is concerned the husband has exhibited cheques dated the 10 June 2015 for US$10,000, 1 September 2015 for US$20,000, 5 December 2015 for US$44,290 and 4 January 2016 for US$20,000. However the letter from P Executive Services Ltd says that the sum of US$44,290 should be paid in US tax for 2014. Thus this sum appears to have been paid in full in December 2015.

22.  Ms Irving puts it thus in her submission:

30.  Second, he claims that he is liable for 39.6% of his income in tax.  He claims that this would equate to HK$114,455 a month [P4/1099].

31.  This is not borne out by the evidence.  For 2014, his US tax was US$42,123 or HK$326,874 [P5/1644] His Hong Kong tax was assessed at HK$479,604 [P5/1663]. That is total tax of HK$806,478 on an income of HK$3,264,030.  That is 24.7% tax.

32.  Applying this rate of tax to his present income of HK$299,920, this gives a monthly tax liability of HK$74,080 instead of the HK$114,455 he claims, a difference of HK$40,375.  This leaves a balance of his salary after tax of over HK$220,000.

23.  Ms Man counters this argument as follows for the husband:

33.  &He’s calculation of tax liabilities is calculated as follows:

(a)  H is required to pay dual tax liabilities, since working in Hong Kong and as he is required to pay US taxes as a US Citizen;

(b)  H’s Hong Kong Tax Returns can be found at Exhibits 1NCT-5 and 1NCT-6:

(i)  For the 2012/2013 financial year, H was required to pay HK$632,259.  These were paid by way of instalments on 3/1/14 and 2/4/14.

(ii)  For the 2013/2014 financial year, H was required to pay HK$649,906.  These were paid by way of instalments on 7/1/15 and 9/4/15.

(iii) For the 2014/2015 financial year, H was assessed to be required to pay HK$505,025.  The 1^st instalment was paid in January 2015.  The next one is due on 6/4/16.

(c)  Exhibit 1NCT-4 and 1NCT-7 contains documents relating to the US tax paid by H.  The rate of tax, which H is required to pay in total is 39.6% as he hit this higher bracket of tax since 2014: Para. 25 of H’s Affirmation;

(d)  A tax rate of 39.6% based on H’s current salary has been calculated to be roughly HK$114,455 per month: Para. 21 to 25 and 48(a) of H’s Affirmation.

(e)  Referring to the taxes paid by H for the past years and from the exhibits and supporting documents referred to above, H’s dual tax liabilities are substantial.

(f)  It should be noted that the accounts and taxes of H have been calculated by his accountant from “P”.

24.  In her supplemental submission Ms Man further argues that:

4.  In answer to paragraph 30 to 32 of W’s Court Note, it is totally misconceived that H’s US taxes are lower than what he has disclosed or that his US tax for 2014 was only US$42,123:

(a)  See H’s US tax documents at [P4/1320-1372]

(b)  H’s US taxes for 2014 was calculated to be US$112,123: See Item 63 at [P4/1322], which is actually also found at [P5/1646].

(c)  The figure of US$42,123 is found at the document at [P5/1644] (same document at [P4/1322], which was the remaining amount that H was required to pay for the total taxes for 2014.  As found at Item 74, H had already paid US$70,000 in tax.

(d)  There does not appear to be dispute as to what H paid for 2014 taxes in Hong Kong [P5/1663].

(e)  Using today’s exchange rate, US$112,123 is about HK$871,054.  Adding that to HK$479,604 [P5/1663], the total tax paid by H for 2014, in Hong Kong and the US combined = HK$1,350,658.

(f)  If we take the average from what H paid in 2014 this is HK$112,554.83 per month ($1,350,658/12).

(g)  H’s annual income is HK$3,264,030 [P5/1663].  Therefore 39.6% of his annual income is roughly HK$1,292,555.88.  H did in fact pay HK$1 .3 million worth of taxes for 2014.

5.  All the documents are there.  H’s payment of US and Hong Kong tax are well supported with documents and they reflect that the total taxes that H is liable to is roughly 39.6% of his annual income.

6.  To further support that H has been paying roughly 39.6% worth of taxes, we can look at the period from June to December 2015 and see that in that period, H paid US$74,920 to the US Treasury: Exhibit 1NCT-7: US$10,000 was paid on 10/6/15, US$20,000 on 1/9/15 and US$44,920 on 5/12/15 [P4/1383-1387]. That equates to roughly HK$582,877.60, which should be added to the payments made to the US Treasury by H’s Mother on his behalf in 2015: Exhibit 1NCT-12 [P4/1398-1402], the breakdown of which can be found at Para. 39 of H’s Affirmation [P4/1095-1096].

7.  It should also be noted that the actual US tax filing will vary that there may be slight variations.  The Court should also take into account that there would be sight adjustments and deductions depending on the tax payable to the Hong Kong IRD and with fluctuating exchange rates: Para. 21 of H’s Affirmation [P4/1090].

25.  As things stand I am not convinced that the husband is paying as much tax as he claims. Going forward I will require a single joint expert to be instructed to assist on this point, if there is no consensus between the parties otherwise. In particular I will wish to know a) what the husband’s actual US tax liability has been historically since separation b) what is estimated tax liability is going forward and c) how much US tax he has actually paid in each tax year with documentary evidence in support. It would be helpful if this information could be provided in tabular form.   

The husband’s loans

26.  Thus as things stand at present I do not accept the husband’s case that he had to take out loans in order to cover credit card expenditure or that the wife had spent to excess necessitating him to do so. He may have needed to take out some loans to cover the Hong Kong tax and possibly some US tax. In that event he was not, during that period, putting aside HK$114,000 per month as tax savings.

Each party’s income

27.  It is accepted that the husband currently earns HK$299,920 per month. The wife is currently assisting a university in Ohio with a course on innovation management. She may not be paid for this but if she is she is unlikely to earn more than US$2,000 for the semester. The wife’s earning capacity and health are both in issue. 

The husband’s ability to pay

28.  The husband argues that he cannot afford to pay more than US$6,000 per month because of the loans and his need to save for tax going forward. As indicated above I do not necessarily accept the husband’s explanation for the loans or the need, on a short term basis to both take out loans and to save for tax. Further the husband’s ability to borrow is also something that I may take into account – see paragraph 11   above.

Each party’s outgoings

The wife

29.  The wife has attached an interim budget to her affidavit dated the 4 November 2015 as follows:

GAS	$150
ELECTRICITY	$300
WATER	$250
SEWAGE	$200
CELL PHONE	$500
CABLE, INTERNET AND LAND LINE	$430
SECURITY	$167
MAINTENANCE- HOUSE ANNUAL$10,000	$800
LAWN CUTTING	$600
HOUSE KEEPER	$550
HOUSE INSURANCE	$320
TAX + RITA	$1,500
SPORT CLUB	$500
CAR LEASE	$550
CAR INSURANCE	$350
PETROL CAR	$650
CAR MAINTENANCE, WASHING	$250
HEALTH INSURANCE	$570
DENTAL	$200
LINCOLN INSURANCE	$250
MEDICATION, DEDUCTABLES, EMERGENCY ROOMS	$300
CREDIT CARD PAYMENTS:
CASH-- ($24000 OWE)	$1,000
DISCOVER - ($4000 OWE)	$400
SAKS - ($1600 OWE)	$50
BANNA REPUBLIC ($1100)	$50
VIAS - ($3000)	$200
FOOD	$1,800
TOTAL	12887

30.  It is of note that this estimate includes repayment of the wife’s own credit card bills. It seems to me that the wife should be able to reduce some of these expenses. For example US$1,800 per month for food is very high for a single person. I also query the need for a housekeeper in the circumstances. The cost of the upkeep for the house is also high.

31.  The husband has suggested that the wife move out of the so called trust property and that she rent something more modest which would also cost less to maintain. This is something that may need to be considered in due course. However for the moment I am proceeding on the premise that the wife shall continue to reside in the same property as before.   

The husband     

32.  The husband’s expenses as updated are as follows:

Part 4 Current Monthly Expenses

4.1       General

Item		Amount
Rent		$34,000.00
Mortgage instalments		0.00
Utilities (electricity, gas, rates, telephone & water)		$2,200.00
Management fees		$0.00
Food		$2,200.00
Household expenses		$500.00
Car expenses		0.00
Insurance premia		0.00
Domestic helper(s)		$2,000.00
Other (specify)		0.00
Total monthly household expenses		HK$   $40,900.00

 

4.2       Personal

Item		Amount
Meals out of home		$4,200.00
Transport		$1,700.00
Clothing / Shoes		$1,500.00
Personal grooming (including haircut and cosmetics)		$500.00
Entertainment / presents		1,200.00
Holiday		$1,000.00
Medical / Dental		$200.00
Tax		$114,445.00
Insurance premia		$667.00
Interim maintenance		$77,594.00
Contribution to parents		0.00
Mandatory HKU Superannuation Contribution		$13,506.00
Others (specify) Loan repayments to T and HSBC Maintenance fees and dues for the Hilton Head Island time-share property		$43,871.00 12,002.00 $2,070.00
Total monthly personal expenses		HK$   $274,455.00

 

4.3       Children

Item	Amount
School fees	0.00
Extra tuition fees	0.00
School books and stationery	$1,600.00
Transport to school (including school bus)	0.00
Medical / Dental	0.00
Extra Curricular Activities	0.00
Entertainment / presents	0.00
Holidays	0.00
Clothing / Shoes	0.00
Insurance premia	0.00
Lunches and pocket money	0.00
Other Transport	$1,000.00
Child-minding fees	0.00
Uniform	0.00
Others (specify)	0.00
Total monthly expenses for children	HK$       $2,600.00

 

Total Monthly Expenses

HK$     317,955.00

33.  As indicated above I have some concerns re the tax rate and the husband’s level of borrowings. I also do not accept the husband’s arguments with respect to the level of credit card expenditure. Certainly on a short term basis if the husband has taken out loans to pay for his tax one wouldn’t expect him to be saving for tax at the same time.

Order

34.  Bearing all of the above in mind and on a broad brush basis it seems to me that the interim maintenance pending suit figure of US$10,000 per month is a reasonable one. Consequently I shall make an order as follows:

1)  The Respondent shall pay maintenance pending suit to the Petitioner in the sum of US$10,000 per month payment to continue to be made on the 1^st day of each month until further order.

2)  Given that neither party has been entirely successful here, although it would be fair to say that the wife has been more successful than the husband, I will make an order nisi to be made absolute in 14 days time that the husband do pay half of the wife’s costs of and occasioned by this application on a party and party basis to be taxed if not agreed.

3)  There shall be a further First Appointment hearing which shall be adjourned to the 11 May 2016 at 9:30 a.m. 

4)  The husband do personally attend that hearing.