Hong Kong has become a center for the art world in Asia, hosting major exhibitions and events. Many Hong Kongers and Mainlanders with connections to Hong Kong have significant art collections, be they in paintings, furniture, sculpture or calligraphy. Art sales usually come about following one of the three Ds: debt, divorce and death. We’ll look at the instance of the division of artwork following a divorce. Under Hong Kong divorce law, all assets, whether in Hong Kong or elsewhere, are available for distribution on divorce. This includes valuable works of art and the value of the piece at the time of the divorce.
Important Steps
The first step, when there may be valuable artworks for division, is to make an inventory. It’s a good idea to take a picture of the piece and, if possible, find the invoice for the purchase. This information can be compiled into a catalogue.
The next important step is to decide if the collection is up for distribution or if the parties would prefer to keep the collection intact. Either way, the parties will need to obtain a formal valuation, for a whole collection or for separate pieces, and engage a specialist valuer in each of the relevant fields of art.
Once the parties provide the valuations, they’ll typically decide whether the collection should remain intact and in the possession of one individual or if there should be a division of the assets. It may be that one party is the collector, and it’s more important for that individual to keep certain agreed-on pieces or if one individual has a sentimental attachment to a particular piece. Once that’s been decided, usually the parties will take turns to pick the items they would like to keep. If there are any left at the end, either for distribution or for sale, they’re typically divided by value or sold and the proceeds divided in accordance with general settlement proposals.
Confidentiality
If artwork is to be sold, it’s important to make sure that the process is confidential to avoid an impact on the sale value. Often, to avoid any unwelcome attention drawn to the sale, a third-party nominee will be appointed to help the parties. A husband and wife will generally also trust an independent third-party nominee rather than their respective lawyers whom they may view as partisan. The nominee can negotiate directly with the auction houses.
Typically, it’s high-net-worth individuals who have these collections, and famous people tend to attract unwelcome press attention. During settlement negotiations, it’s important to include a confidentiality clause so that both parties don’t let it slip that there may be artwork coming onto the market, again to protect the value and to allow the pieces to be sold other than on a fire sale basis.
Sometimes it’s not possible to maintain the confidentiality of very high profile cases. This happened in the Mimi Hung case,1 which went to the Court of Final Appeal. One of the central issues was how to deal with the incredible collection built up by Ms. Hung over many years, “the Hung Collection,” about which catalogues and books had been written. Much of the collection was comprised of antique furniture that had been valued at HK$749 million (taking the average valuation from Sotheby’s, Christie’s and Beijing Poly International Limited). There were also paintings and artifacts worth over HK$42 million. In the end, the collection was distributed between the husband and wife, with each taking turns choosing who kept what. In this case, the court allowed the husband to have the first pick, up to a value of HK$79 million. Thereafter, the parties were to pick three items each until the collection was exhausted.
Plan Ahead
It’s therefore important to get the best advice right from the outset so that the parties are fully aware of the extent of their collections and their values. The parties should decide how they want to divide the collections to minimize the stress and anxiety that personal items can engender. Don’t underestimate the feelings people have for such items, the possession of which by the other party can be a deal breaker. Particular care needs to be given to preserve the value of the assets, ensuring confidentiality at each stage of the process.
Endnote
1. Mimi Kar Kee Wong Hung v. Raymond Kin Sang Hung, [2015] HKFLR 318.