Watches, wine and wealth: safeguarding valuable collections during marriage in Hong Kong, Singapore and England & Wales

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What happens to valuable assets purchased or transferred during the marriage? 

For many affluent families, valuable collections continue to grow during marriage.

When assets acquired during marriage become matrimonial property

If the artwork or heirloom was inherited or gifted, the court would have a similar view to that of a premarital asset, in that it would prima facie be considered non matrimonial as an asset acquired unilaterally, that is, only by one of the parties without any contribution from the other. It would be advisable, all the same, to protect this asset with a postnuptial agreement and a will to show that both parties were clear on what the parties would like to happen to this asset on divorce or death.

If the asset was purchased during the marriage, it is likely to be considered matrimonial, particularly if the asset was purchased with marital funds. Once parties are married, their assets, in the form of income earned and assets purchased from saved income, are considered marital. In Hong Kong and England & Wales there is no discrimination between the breadwinner and the homemaker, and so, even if the capital is built up by the breadwinner, his claim to the funds in the marriage is no greater than that of the homemaker and the starting point for division is equality. The position in Singapore is the same, although there is no starting position of equality in the division of assets.

At the same time, wealth structures themselves are becoming increasingly sophisticated. Families are more frequently using trusts, family offices and investment holding structures to hold and manage valuable assets across generations.

As personal wealth becomes increasingly international and diversified, families are paying closer attention to how valuable collections should be structured and protected during marriage.

The growing role of trusts and family offices 

For particular types of assets, it may be advisable to consider setting up a trust, particularly if the intention is for the valuable asset to pass down to future generations. Care will have to be taken with setting up the trust. In essence, the settlor will have to relinquish ownership of the asset to the trustees, who will then be the legal owners of the valuable asset, and it will be open to them to dispose of the asset if they consider it to be in the best interests of the beneficiaries. Detailed advice will be needed from both family and trust lawyers in drafting the trust deed with the appropriate wording. For example, if the intention behind the trust was to have the asset pass down to the children and to be ringfenced against any possible future claim by the other spouse, the deed must not include the other spouse as a beneficiary, otherwise the deed will be deemed to be a nuptial settlement.

Even if the trust is set up without the spouse as a named beneficiary, there is a possibility for the courts in Hong Kong and England & Wales to vary the trust to benefit that spouse and/or the children under its power to vary settlements. Usually, however, a court will not interfere with the terms of the trust more than is necessary to achieve fairness, and if the purpose of the trust is to protect an heirloom or valuable asset for future generations, it is likely to look elsewhere to provide for the other spouse. Orders to vary a trust settlement in Hong Kong are rare.

In setting up a trust, it is also advisable to draft the trust deed in such a way that it can be demonstrated to the court that the settlor is not retaining powers over the trust. In a leading case in Hong Kong, the settlor was also a beneficiary and protector of the trust. The court found that, should the settlor request the trustees to pay dividends to him, they would do so. In this scenario, the court found that the trust was a resource of the husband and the funds within the trust could be divided equally.  

In England & Wales, where the court finds that a trust is nuptial and capable of variation then its powers are extensive. For example, it can add or remove beneficiaries, change the terms of the trust, replace or remove trustees and if the settlor to the trust is one of the parties and the settlor has the power to revoke the trust the court can revoke the trust. Where the trust is not nuptial, it may be a resource, and the court can make an order against the beneficiary on the basis that funds are likely to be made available to them. The court will look at the terms of the trust, its purpose and how it has been managed to determine whether it is a resource.

In Singapore, the Court does not have the power to vary nuptial settlements. A dynastic trust is therefore an effective mechanism by which to pass down family heirlooms. Children and further generations of the settlor will find that their interest in the family heirloom is protected from matrimonial claims by virtue of the asset being (1) premarital, (2) inherited, and (3) gifted. The children must, however, be careful not to engage in any of the conduct that could transform the heirloom into a matrimonial asset. We have discussed a few ways in which this could happen in our earlier article.  

However, trusts are not immune from scrutiny during divorce proceedings, whether in Singapore, England & Wales or Hong Kong.

Courts may examine:

• whether the settlor retained effective control over the trust;
• how the trust operates in practice;
• whether the spouse benefits from the trust;
• whether the structure was created primarily to defeat claims; and
• whether trust assets remain realistically accessible.

Particular care is required where a trust benefits both spouses. In England & Wales and Hong Kong, in certain circumstances, courts may characterize such arrangements as nuptial settlements capable of variation during divorce proceedings. The practical operation of the structure therefore became more important than the formal legal documentation alone. In Singapore, depending on how the spouses’ interests in the trust came about, such interest may be regarded as matrimonial assets and therefore subject to division in a divorce.

Structuring wealth proactively during marriage

As collectible wealth becomes increasingly valuable and international, families are increasingly taking a more strategic approach to structuring and governance during marriage. A trust structure can be an effective tool for asset protection, but specific expertise will be required to draft the deed.

Careful planning during stable periods is often significantly more effective than attempting to restructure arrangements once disputes arise.

This article is part of a three-part series on marriage, divorce and valuable assets in Hong Kong, Singapore and England & Wales. Read our related articles on protecting inherited wealth before marriage here and disputes over collectible assets after marriage here.

You can find out more about how our global divorce and family team helps international families navigate complex, cross-border disputes here.