Divorce is the ultimate court action involving two individuals in conflict, but in many scenarios, third parties can be embroiled in the proceedings too.
As the conflict is a family matter, family members can be involved in various ways, either voluntarily or otherwise. So too can relevant corporations and trusts. If necessary, such parties can be joined as parties to the action.
Assets 'owned' by family members
Perhaps the most common third-party involvement is where there is a dispute as to whether a property is beneficially owned by one of the parties or whether that asset in fact belongs to a family member. It is a common practice in Hong Kong, with its strong ethos of family support, that properties are held by other members of the family, such as parents or siblings on behalf of a divorcing party, or by that party on behalf of family members.
It has been said by the Court of Appeal that a party should be joined as a party to the action only if there is a competing claim to that property. The court found that there was a difference between cases where the third party is the legal owner or one of the legal owners of the disputed property and cases where the spouse claims that the third party has a beneficial interest in a property legally held in the name of that spouse. In the former case, the party should be joined as a party since the legal title of the disputed property would have to be transferred or subject to encumbrance if the ownership issue is resolved by the making of a proprietary order. In the latter case, the third party should be notified of the claim and if he or she decides to contest the ownership issue, he or she should apply to be joined as a party to the proceedings. If the third party does not apply to be joined, he or she shall be bound by the judgment.
Determining the beneficial interest of matrimonial property normally involves a preliminary hearing so that the court can fully understand what is in the matrimonial pot for division. The court will look at issues which normally arise in chancery actions, that is to say, questions of equitable ownership such as those arising from resulting trusts or common intention constructive trusts, i.e., the spouse is actually holding the asset on their behalf for some reason. On the face of it, beneficial ownership follows the legal title, and therefore, if a party would like to argue otherwise, detailed evidence of how the property came to be held in that way must be provided to the court. Often, this involves historical facts as to how and when the property was held, when it was bought, or the legal title transferred. These cases are notoriously complex and involve multiple parties.
The family courts regularly see cases where there are conflicting claims as to real property, bank accounts, and family company shares, as those assets are often held by other family members or jointly with them. Increasingly, the court will encourage parties to settle these disputes by mediation involving all relevant parties, as dealing with such issues can be very expensive and time consuming, and this is all before the finances between the spouses begin to be resolved.
The Bank of Mum and Dad
Other ways third parties may become involved may be with financial assistance to the parties. It is common in Hong Kong and elsewhere that parental assistance with a young couple's expenses is given. This may be by way of a loan, gift or continuing and regular financial help.
Generally, a family court will look at a family loan and deem it to be a 'soft loan', that is, not one which is strictly repayable and more in line with a gift. Such family loans and gifts are generally considered to be part of the financial resources of that party and will normally be taken into account for asset division.
Continuous and regular family financial support may also be taken into account if need be. The court will look at the historical assistance and assess whether this is likely to continue into the future. It is not usually the case that a third party who has provided financial support will be joined to the action, but it is highly likely that they will be required to provide evidence and may be called as a witness. Parties have been specifically discouraged from formally joining a party to the action only for the purposes of discovery and giving evidence unless there has been a particular order made against them.
Trustees and companies
Typically, other third parties who may become involved in family cases are trustees and directors of family companies. There is no rule that such third parties will be automatically joined, and the court will need to look at all the circumstances of the case, and particularly whether it was necessary, just, and convenient to join the third party to allow them the opportunity to participate in the court's investigations and to assist the court. Also, it may be appropriate to join a trustee or corporation for the purposes of enforcement.
To sum up, the involvement of third parties occurs regularly in family disputes, and it is a matter of fact as to the extent to which they become involved. In any such case, the issues are generally complex and resolving them is expensive. Mediator-led FDRs are recommended in such cases to try to resolve these issues as part of the settlement negotiations or prior to the trial of the financial matters. Parties are advised to seek legal advice from experienced law firms in these cases.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
