Posts
by Jeremy D. Morley
https://www.international-divorce.com/notes-on-laws-and-practices-of-china-3
In China, marital property is theoretically required to be divided equally between the spouses upon a divorce. But without an enforceable obligation to make full disclosure of assets, there has inevitably been a yawning gap between theory and practice. Until recently, no such obligation to disclose assets existed in China.
The
Law of the People’s Republic of China on the Protection of Women’s Rights and
Interests, as amended in 2022 with effect from January 1, 2023, now provides
that during divorce proceedings both parties have an obligation to declare all
of their joint property. The statute provides further that a party who conceals,
transfer, sells, destroys, or squanders any such property may receive a reduced
share of the marital property upon a divorce or even no such share.
Effective
on January 1, 2023, the Hengyang County People’s Court issued specific rules
ordering divorcing spouses to truthfully declare their marital assets. Courts
in other provincial governments have since followed suit. How effective these
requirements will be remains to be seen.
These
developments are especially significant in light of the fact that “joint” or
“common” or “community” property has a very broad definition in Chinese law and
that the governing statute requires an equal division between the spouses,
regardless of considerations of fairness or respective contributions. The Civil
Code provides that it includes salaries, wages, bonuses, and other remuneration
for services rendered; proceeds from production, business operations, and
investment; proceeds of intellectual property rights; inherited assets and gifts;
and properties in joint names. The Code then provides that the following
classes of property are excluded from being common assets: a spouse’s
premarital assets, personal injury awards, property given in a will or “gift
contract”. and daily life articles used by one spouse, and “other property that
shall be owned by one spouse.”
These
new laws and court rules may explain why there has been a reportedly been a
significant uptick in high-net-worth divorce settlements in China, especially
affecting stockholders in major listed companies.
It
also means that there is now likely to be a significant increase in prenuptial
and postnuptial agreements entered into by Chinese and Chinese-connected
parties. It appears that such agreements are now needed more than ever.
However, for international clients they should be crafted by counsel with
significant experience in developing international prenuptial agreements for
various international jurisdictions.
