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Advice: Transfer of Property in a Divorce Settlement

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Polly Chu and Billy Ko, Partners in the Corporate and Family Teams at Withers, outline what you need to know.

Divorce proceedings often involve the division of matrimonial properties between divorcing couples who may choose to sell their properties and distribute the sales proceeds. The situation gets more complicated if the divorcing couple decides to transfer the properties amongst themselves. This article highlights some important issues relating to property transfer by divorcing couples in a divorce proceeding.

STAMP DUTY LIABILITY: There is a common misunderstanding that stamp duty is not chargeable on a property transfer pursuant to a divorce order granted by the Family Court of Hong Kong. Even if the property transfer is ordered by the Court, parties are liable to payment of “ad valorem stamp duty” for both transfer of residential properties and nonresidential properties at Scale 2 rates. How much is payable depends on the consideration of the transfer or the properties’ market value.

A divorced party who is the owner of a residential property in Hong Kong and who agrees to receive an additional residential property in Hong Kong under the terms of a divorce court order issued by the court outside Hong Kong cannot obtain the benefit of a lower stamp duty.

The assessment of stamp duty can be a complicated issue. A property’s market value is only one of several factors to be considered. Following the cases of Ngai Sau Ying v Collector of Stamp Revenue (CACV 460/2018) and Hung Ip Shing v Collector of Stamp Revenue (CACV 461/2018), the division of properties between divorcing parties can be regarded as an exchange of properties in substance, and thus for stamp duty purpose, the difference in property value, namely the “equality money,” is the basis for the computation. Under the fairness principle in a divorce proceeding, both monetary and non-monetary consideration given by one party to another pursuant to the divorce order will have an impact on how much stamp duty is paid and by whom.

VOIDABLE TRANSACTIONS: Very often the transfers of properties between divorced couples are at “nil” consideration. Parties should be mindful of the potential risks associated with such an arrangement because a transaction is voidable if it is undervalued or considered as a disposition made with intent to defraud creditors. The “relevant time” for a transaction at an undervalue is any time within the period of five years, ending with the commencement of the bankruptcy/ winding-up.

MORTGAGED PROPERTIES: A change in ownership of the property is prohibited under the standard terms of a mortgage. The existing mortgage of the property will therefore be discharged or released upon completion of the transfer. Some important questions for divorcing couples to consider include: Who will be responsible for the repayment of the outstanding loan to the bank? Who will bear the costs of the discharge and redemption of the existing mortgage? Will any new mortgage loan be required right after the completion of the transfer to finance the repayment of the existing loan? Is the divorcing party to whom the property is transferred financially capable of applying for a new mortgage loan? Lastly, the transfer of real property does not only deal with ownership of property; it may come with a “basket” of other rights. For example, if the property is transferred subject to an existing tenancy, the divorcing couple will need to agree on who is responsible for managing the relevant tenancy issues.

Withers’ teams of matrimonial and conveyancing lawyers have extensive experience in dealing with Hong Kong law.

Should you have any enquiry, contact Polly Chu at [email protected] and Billy Ko at [email protected].

Withers, 30/F United Centre, 95 Queensway, Admiralty, 3711 1600 www.withersworldwide.com.

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