- A property involved in divorce proceedings is usually clearly noted in the Land Register. Buyers should check carefully before signing.
- The court treats property owned by the couple as family property, and assets in one spouse’s sole name may also be divided on divorce.
- Under the Stamp Duty Ordinance (Cap. 117), stamp duty is payable even on a property transfer ordered by the court.
- If the original owner applies for bankruptcy or winding up within 5 years after transferring the property, a transfer below market value may be affected.
When a couple own property jointly or separately, how the title is dealt with on divorce is a key issue. It covers how the court determines each spouse’s interest.
This article looks at property rights on divorce in Hong Kong, how mortgages are dealt with, and how buyers can recognise a property caught up in a marital dispute.
How to spot a property in divorce proceedings: registry records and terms
A buyer thinking of buying a property in dispute should check the land registry records carefully before signing the sale and purchase agreement, to assess the risks.
Please note
- In a property transaction, if the property is involved in a divorce case, legal proceedings may affect it and restrict the freedom to deal with it.
Usually, when a property becomes part of divorce proceedings, this is clearly noted in the Land Register.
For example, the “Encumbrances” column may state “Certified True Copy of Notice of Intention to Proceed with An Application for Ancillary Relief”. This means the property is involved in the division of property on divorce.
When reading legal documents about a property, you may come across these terms linked to divorce:
- Divorce Petition
- Divorce order based on behaviour (Order: Divorce Behaviour)
- Deed of Partition
Not sure whether a property is involved in divorce proceedings?
Feel free to check your situation with us.
Extra risks of buying a property in dispute: mortgage applications and transfer
A buyer thinking of buying a property in dispute should not only search the records to find out its litigation status, but also watch for the specific risks that go with it.
Uncertainty over mortgage applications
A transfer of property on divorce may involve no payment, so the law may treat it as a transfer for no consideration, similar to a property passed by deed of gift (known in the market as a “gift-deed flat”).
Please note
- If the property was previously recovered because of the owner’s bankruptcy, a bank may refuse a mortgage loan.
Complications in transferring the property
Because a property in dispute may be treated as a “gift-deed flat”, a new buyer may worry about not getting a high-percentage mortgage loan.
This affects the property’s market value and may make it harder to resell later.
- Decree nisi and decree absolute in Hong Kong
- Hong Kong divorce agreements, petitions and joint applications explained
How the court judges property rights on divorce in Hong Kong
When spouses decide to end the marriage but cannot agree on property rights, the court decides the division of title under the relevant law.
Forms of ownership
The court treats property owned by the couple as family property and divides it on the principle of fairness, including but not limited to:
- Bank deposits
- Real estate
- Shares, funds and similar assets
In dividing property on divorce, the way an asset is held is an important factor, and assets in one spouse’s sole name may also be divided.
Even if an asset is registered in one person’s name only, the other spouse may be awarded a share of the title by court judgment.
Likewise, assets in joint names are not necessarily divided equally.
Factors the court considers
In dividing property on divorce, the court weighs several factors to protect both sides’ interests. They include:
- Each spouse’s current and expected income, assets and other financial resources
- Each spouse’s current and expected financial needs and expenses
- The standard of living during the marriage
- Each spouse’s age
- How long the marriage lasted
- Each spouse’s physical and mental health
- Each spouse’s contribution to the family, such as looking after the home
- Benefits each spouse may lose because the marriage ends, such as a pension
- The welfare and interests of the children
What the court does with property after divorce: sale, transfer or joint ownership
After weighing the factors with care, the court decides how to divide the title. This usually takes one of three main forms:
- Sale of the property: in some cases the court directs the spouses to sell a jointly owned property. If they cannot agree on how to divide the proceeds, the court divides them fairly according to each spouse’s finances and contribution to the family.
- Transfer of title: the court can also order one spouse to transfer title to the other.
- Keeping joint ownership: the court lets the spouses go on holding the property in joint names. They can sell it only in specific circumstances, such as the death or remarriage of one of them, or the children finishing their education.
Transfer of title
In many cases, if the wife gets custody of the children, the court may award her a property owned solely by the husband, to secure the children’s standard of living.
In a transfer of title, if the property is worth more than the wife’s entitlement, the court may require her to pay the difference to her former husband.
Please note
- If the property to be transferred still has an unpaid mortgage, the mortgage must be put in the other spouse’s name, with the lending bank’s approval.
- If the mortgage lender does not agree, or asks for an extra guarantor, the transfer of title may meet obstacles.
Where joint ownership continues and the property is later sold, the proceeds are divided under the spouses’ agreement or the court’s judgment.
- How to get the best maintenance after divorce
- What happens to the property and mortgage after divorce
- Housing arrangements for public rental flats after divorce
Not sure whether to sell, transfer or hold the property jointly?
Get in touch, and a dedicated consultant will first understand your situation.
Mortgages and property transfer on divorce in Hong Kong: stamp duty and transfer risks
Under the Stamp Duty Ordinance (Cap. 117), even a property transfer ordered by the court is subject to ad valorem stamp duty, and the parties must pay the tax to the government.
Please note
- In Hong Kong divorces, many people wrongly believe that a property transfer under a court order is exempt from stamp duty.
The duty is calculated on the transfer value or market value of the property. The divorce agreement usually sets out which spouse bears the stamp duty.
Risks of transferring a property
In a divorce, transferring a property for a nominal “zero” consideration can lead to legal problems.
Please note
- Under the Bankruptcy Ordinance (Cap. 6) and other related laws, any transaction clearly below market value may be treated as void.
- When spouses transfer a property in a divorce, if it is undervalued or no transfer price is stated at all, the transaction may be treated as void.
- In particular, if the original owner applies for bankruptcy or winding up within 5 years after transferring the property, any transfer below market value in that period may be affected.
In addition, if title was obtained through a transfer for no consideration, a bank is likely to refuse a mortgage on that property.
If a property transferred for no consideration needs a mortgage, many banks will also refuse because they cannot confirm that the title is good.
When drawing up a divorce agreement, both spouses must consider these potential risks carefully.
Obligations and related property rights when transferring a mortgaged property
A mortgage contract normally prohibits transferring title without consent, even if the person receiving title is one of the original co-owners on the mortgage.
Please note
- When a property with a mortgage loan is transferred, there is a common misconception that the new owner automatically takes on all the rights and obligations.
In a transfer, the spouses need to consider:
- Who will repay the remaining mortgage
- Who should bear the related costs
- Whether a new mortgage is needed to pay off the existing one
- Whether the new mortgage needs approval from the bank or another third party
- Whether a land premium has to be paid on the transfer
- Whether the person receiving title has enough income to apply for a new mortgage
- Whether an additional borrower or guarantor is needed
These are all important points that divorcing spouses need to confirm and discuss with the bank before dealing with the transfer.
Managing related property rights
Transferring a property is more than a physical exchange. It may carry other legal rights, and the spouses need to be clear about how these will be divided and exercised in future. For example:
- Under a tenancy agreement, the spouses need to agree who will manage the agreement.
- In dividing a property, the right to live in it may be offered in exchange.
- Changing jointly held property into property held as tenants in common.
- In some cases, to reach agreement, the spouses may agree to keep housing the other spouse or the children for a period after the divorce.
These are all points to consider when preparing a divorce agreement.
- Why are divorce lawyers expensive?
- Why hire a solicitor for your divorce: the benefits and why it matters
- Free ways to consult a divorce solicitor, what a consultation covers and who to consider: a full guide
Unclear about your obligations when transferring a mortgaged property?
If in doubt, feel free to contact our dedicated consultants.
