SINGAPORE: An Introduction to Family/Matrimonial: High Net Worth

Introduction  

Singapore appears on track to become Asia’s millionaire capital by 2030. Asia’s growing ranks of high net worth (HNW) and ultra-high net worth (UHNW) individuals have in recent years increasingly selected Singapore as the jurisdiction of choice for their single-family and multi-family offices. Singapore continues to be a leading destination for ventures and enterprises, leveraging Singapore’s vibrant ecosystem and pro-business infrastructure. The family and matrimonial legal landscape in Singapore is also undergoing rapidly evolving change. With approximately 40% of divorces in Singapore involving at least one foreign spouse, there is an increasing use of pre and postnuptial agreements to hedge against risks in future divorces, whilst instances of forum and jurisdiction disputes and proceedings involving international relocation of children are becoming commonplace. As the rich grow richer, complex disputes involving the tracing and valuation of assets, beneficial ownership of assets and validity of trusts are also more frequently seen in the courts.

Increasing Use of Prenuptial and Postnuptial Agreements

As regional well-to-do families become increasingly wealthier, private clients (especially the younger scions of such families) are beginning to overcome prior cultural reticence to enter into prenuptial agreements. Such agreements are more readily made where one or both parties have substantial pre-marital assets or family wealth to protect. This development aligns with Western private clients who typically enter into such agreements under legal regimes applicable to them. Some even enter into trust arrangements requiring the making of a prenuptial agreement as a precondition for a beneficiary to receive assets and/or income under a trust.

Postnuptial agreements, whilst not typically made as a matter of course, tend to be entered into by couples who have prenuptial agreements in the first place. Some prenuptial agreements even require that the parties enter into postnuptial agreements affirming or updating the terms of the prenuptial agreement every few years. Such a practice could support local courts’ decisions to make financial provision orders reflecting the terms of such agreements, since the economically weaker spouse would have had the opportunity to re-negotiate such terms during the marriage.

International Relocation and Child Abduction Proceedings

The 1980 Hague Convention on the Civil Aspects of International Child Abduction is an international treaty aimed at protecting children who have been wrongfully removed from their country of habitual residence or wrongfully retained in any contracting state, without the permission of the parent who has rights of custody and/or access to such children. There are currently 103 signatories to the Convention, including Singapore.

When international child abduction occurs, the court can take prompt action in hearing the matter on an expedited basis and order the return of the child(ren) to the country of habitual residence. Accordingly, a parent who intends to leave the country of habitual residence with the child(ren) will typically have to apply for the court’s permission to relocate from Singapore or risk being embroiled in child abduction proceedings. International relocation cases tend to be highly contested, and are understandably difficult to mediate.

Immigration Issues in Family and Matrimonial Cases

Where foreign trailing spouses relocate to Singapore for their partner’s employment, they are usually granted a Dependant’s Pass (DP) tied to their spouse’s Employment Passes (EPs). When a divorce is finalised, the DP lapses. The dependent ex-spouse would then be issued a Short-Term Visit Pass (STVP) that allows the dependent ex-spouse to stay in Singapore typically only for 30 days, though an extension may be obtained for up to 90 days. To continue remaining in Singapore, a longer-term solution is needed. Unfortunately, it is not unheard of for spouses having EPs to threaten or take steps to cancel the DPs held by their spouses when family proceedings are imminent or occur. If so, the court has power to grant an injunction to prevent the cancellation of a DP or order reinstatement of a cancelled DP, if such cancellation is found to be part of a scorched earth strategy to separate the trailing spouse from children in Singapore or to inflict financial hardship, unnecessary stress or where it places him or her a disadvantage in proceedings and/or where the welfare of their child(ren) is adversely affected.

A foreign spouse with a Singaporean spouse (and potentially, Singaporean children) may hold a Long-Term Visit Pass (LTVP), permitting residence in Singapore for up to two years. The immigration authorities have made clear they will typically facilitate the renewal of LTVPs of foreign spouses until the end of any divorce proceedings, if there are Singaporean children involved and a local sponsor supports such an application. However, it remains challenging for foreign spouses to remain in Singapore after a divorce. Such immigration issues will inevitably continue to adversely affect issues relating to custody, care and control and access.

Trusts in Matrimonial Cases  

Generally, as part of divorce proceedings, matrimonial assets will be divided and distributed in an equitable manner between the husband and the wife. The court has to first determine what assets are matrimonial assets. Under the Women’s Charter, matrimonial assets include assets acquired during the marriage but may also include assets acquired before the marriage. Common examples of matrimonial assets include monies in bank accounts, cash balance in Central Proficient Fund accounts, investment portfolios, jewellery, artwork and fine wines.

The existence of a trust may impact what constitutes matrimonial assets. A trust is an arrangement between a person (a settlor) and a trustee where the person transfers ownership of assets to the trustee. The trustee becomes the legal owner of the assets and holds the same for the benefit of the persons named as beneficiaries of the trust.

There are various types of trusts. In this article, we will discuss the irrevocable, discretionary trust, which is regarded as the gold standard for asset protection.

The irrevocability of a trust aids with asset segregation and protection for the settlor while the discretionary nature of a trust can contribute to asset segregation and protection for the beneficiaries.

An irrevocable trust is one where the settlor has irrevocably transferred ownership of their assets to the trustee. The settlor cannot ask for the trust to be revoked and for the assets to be returned to them. If the settlor is involved in divorce proceedings after assets have been settled in an irrevocable discretionary trust, such trust assets may no longer constitute part of the settlor’s assets subject to division.

A discretionary trust is one where trustees have discretion as to the distributions to the beneficiaries. Such discretion includes the timing and quantum of distributions and even which beneficiary receives a distribution. A beneficiary of a discretionary trust does not acquire beneficial interest in the trust assets until the trustee makes an appointment or distribution of trust assets to them. Trust assets which have not been appointed/distributed will generally be protected from any matrimonial claims against such beneficiary. To limit leakage of the trust assets to feuding spouses, it is not uncommon for trust documents to explicitly state that trust distributions are to be temporarily halted/not to be made to any beneficiary involved in divorce proceedings.

While the existence of a trust could be a tool for asset segregation and protection for the settlor and beneficiaries of the trust, the court may disregard the trust in some cases and find that the trust assets form part of the matrimonial assets that are subject to division. This is especially so for trust structures created just prior to the commencement of divorce proceedings, with the intention to deprive the other party or which are regarded as sham trusts. Trust assets here may still be considered as matrimonial assets and be subject to division.

Trusts can also be used in a productive manner in matrimonial cases. Parties to a marriage can establish a trust for the benefit of their children and formalise how they would like the assets to be distributed. The trustee may be the settlor(s) or a third party who will administer the trust for the benefit of the children. With careful drafting of the trust documents, parties can be assured that after the divorce is finalised, the trust assets are protected for the children of the marriage and the other party cannot include unintended beneficiaries (such as future spouses or children of subsequent marriages) and/or change the distribution of trust assets.

Taxation Issues Arising Within a Matrimonial Context

There are no major Singapore tax implications within a matrimonial context except for stamp duty that may potentially be payable as a result of a transfer of immovable property arising from division of assets. However, stamp duty paid will be eligible for remission if the transfer is a result of compliance with any court order for division of matrimonial assets or is in consequence of a divorce proceeding; and the property is transferred by a party to the other in the matrimonial proceedings and/or any child(ren) of the marriage.

Succession Planning for HNW Clients  

Executing a will remains a popular means of succession planning. As a tool of testamentary disposition, an individual can specify a person(s) to act as executor(s) of their estate, obtain probate, call in assets and distribute them in accordance with the will. With the abolishment of estate duties in Singapore in 2008, an individual can focus on the main considerations of succession planning – to decide on their inheritors and their respective entitlements upon his demise. Where testamentary wishes are properly and clearly expressed in a valid will, the will is a reliable instrument for succession planning in the absence of fraud, lack of testamentary capacity or duress.

Another common succession planning tool is the setting up of a trust. As discussed above, an individual may transfer their assets to trustees to be held for the benefit of named beneficiaries. If the trust is set up during the settlor’s lifetime, it would be an inter vivos trust. If the settlor wishes for the trust to be created only upon their death, testamentary trusts can be set out in a will.

Setting up a family office has, in recent years, also become a popular tool in succession planning to manage the tax impact of making investments. Where a Singapore-based family office carries out fund management activities in relation to family wealth, it is possible to apply for tax exemptions.

Three of the main fund tax exemption schemes offered by the Singapore government are:

(i) Section 13D – Offshore Fund Exemption Scheme;

(ii) Section 13O – Resident Fund Exemption Scheme; and

(iii) Section 13U – Enhanced Tier Fund Exemption Scheme.

Under these schemes, most investment gains (passive or from trading) derived by the family would be exempted from tax.

Since 2010, the Mental Capacity Act 2008 offers individuals the option of making a lasting power of attorney (LPA), an instrument where the maker (the donor) appoints a person(s) (donee(s)) to make welfare and/or financial related decisions on their behalf should they be mentally incapacitated. While technically not a succession planning tool, it is prudent to plan for the management of one’s care and assets in the event of loss of mental capacity.

The Advent of Digital Assets  

Besides cryptocurrency, digital assets may also comprise other assets which can be created and stored digitally, and are identifiable, discoverable and have or provide value. Such assets may comprise central bank digital currency (CBDC), currently on trial in more than 100 countries, bitcoin, ethereum, litecoin, tether, non-fungible token (NFTs), digital media, data, and potentially, social media presence. What we understand to be digital assets today, may be very different in the future.

The first decentralised digital cryptocurrency, Bitcoin, was launched in 2009. Over the years, crypto-assets have gained enormous popularity despite their volatile nature. This can be seen from the price of Bitcoin in the past year. In the first half of 2021, the price of Bitcoin soared to an all-time high of over USD64,000 per bitcoin before falling to less than USD30,000. In addition, crypto-assets seem particularly vulnerable to fraud. In the United States alone, the Federal Trade Commission saw a sixty-fold increase in reported losses to cryptocurrency-related scams in 2021 compared to 2018. Because crypto-assets are largely unregulated, there may be difficulties in tracking down and recovering any stolen digital funds. The recent FTX crypto-exchange crash in the last quarter of 2022 threatens the stability and attractiveness of such assets. Nevertheless, within a matrimonial context, there is also a risk that spouses may hide their assets in the form of untraceable cryptocurrencies during marriage and divorce or potentially purchase NFTs and/or digital assets at an overvalue.

Challenges in tracing, identifying and valuing digital assets

Singapore has joined the growing list of jurisdictions recognising cryptocurrencies as property. In CLM v CLN, the Singapore High Court adopted the reasoning in Ruscoe v Cryptopia Limited, where the New Zealand High Court ruled that cryptocurrencies could constitute property if they met the four Ainsworth criteria of being definable, identifiable by third parties, capable of assumption by third parties, and having some degree of stability.

Whilst spouses are required to fully and frankly disclose their assets and means in divorce proceedings, the difficulty with cryptocurrency is that there are no independent intermediaries with whom to verify ownership. Owing to the pseudonymous nature of such digital assets, even though transactions are recorded in a public ledger via blockchain technology, if a spouse owning cryptocurrency does not disclose their ownership of such assets, it will be difficult to trace such assets to that spouse. Forensic experts specialising in cryptocurrencies may have to be engaged at no small cost to give evidence in the dispute. Whilst the Singapore court can exercise in personam jurisdiction against a defendant, the location of any digital asset may have implications relating to the enforcement of any orders made. After all, cryptocurrencies are not physically “stored” anywhere. Assuming one uses a cryptocurrency wallet, the amount of cryptocurrency in the wallet is stored in a blockchain. The cryptocurrency wallet is not a physical pouch of cash or store of value, but rather a set of cryptographic keys which allows one to receive and send tokens which are recorded in a public ledger.

Given its volatility, there may be disputes over the valuation of such assets. The court would have to fix a date to value the assets, as close to the hearing date as possible. To prevent a spouse holding crypto-assets from disposing them overnight, the other spouse may apply for an injunction to freeze the assets but it might be difficult to implement such orders.

Where digital assets have been transferred to persons unknown or where one spouse is a victim of fraud, the Singapore Courts may provide relief by granting interim orders against persons unknown in relation to cryptocurrencies, if the description used was sufficient to distinguish those who are included and those who are not. In CLM v CLN, the persons unknown were described by their connection to the fraud:

“In this case, the Court considered the following description to be sufficiently certain: “[A]ny person or entity who carried out, participated in or assisted in the theft of the Plaintiff’s Cryptocurrency Assets on or around 8 January 2021, save for the provision of cryptocurrency hosting or trading facilities.”

The court’s willingness to intervene in non-fungible tokens (NFTs) is also apparent from the Singapore High Court decision in Janesh s/o Rajkumar v Unknown Person (“chefpierre”) [2022] SGHC 264, which clarified that the Singapore courts could hear cases related to blockchains despite their decentralised nature. The High Court held that NFTs could be considered as property as they fulfilled certain legal requirements, such as being easily distinguishable and having owners capable of being recognised by third parties. An interim injunction was sought by one Mr Janesh, a Singaporean, to protect an NFT known as Bored Ape Yacht Club (BAYC) No 2162. BAYC is a limited collection of NFTs, each featuring an ape with distinctive attributes such as facial expressions, clothing and accessories. Mr Janesh had been trying to repossess BAYC No 2162 from an online persona named "chefpierre", whose identity was stated as being unknown in court documents. Notably, the court allowed Mr Janesh's request to serve court papers on “chefpierre” via Twitter and a chat platform Discord, and the messaging function of the persona's cryptocurrency wallet address. The court accepted Mr Janesh's claim that “chefpierre” would post regularly on Twitter and it would be possible, given time, to unravel the persona's real identity.

As there are no reported family court judgments on the division of digital assets yet in Singapore, it remains to be seen how challenges in tracing, identifying and valuing digital assets will be dealt with in a family law context.

Privacy in Family Law Proceedings  

Since 2014, all matters and proceedings in the Family Justice Court must be heard in private. Reported judgments in family hearings are also redacted for anonymity. A Family Justice Court has power to hear a matter by way of public hearing only if it is satisfied that it is expedient in the interests of justice. The privacy afforded by the family judicial system provides many HNW clients with the confidence to litigate their legal disputes in Singapore and to enter into pre and postnuptial agreements conferring exclusive jurisdiction over any disputes on the Singapore courts.