The Singapore Law Gazette

Intention – A Third Way to Transform Gifts and Inheritances into Matrimonial Assets

CLC V CLB [2023] 1 SLR 1260 (CLC) and Its Impact on Inter-Spousal Gifts

This article examines (a) the circumstances in which gifts and Inheritances (normally excluded assets) can fall into the matrimonial pool, and (b) the status of inter-spousal gifts, in the light of the recent Court of Appeal decision in CLC v CLB [2023] 1 SLR 1260.

1. The Court’s power to divide the parties’ assets upon a divorce is restricted to matrimonial assets.¹Section 112 (1) Women’s Charter (“Charter”). That term is exhaustively (“means”) defined in section 112 (10). By its tailpiece²“but does not include any asset (not being a matrimonial home) that has been acquired by one party at any time by gift or inheritance and that has not been substantially improved during the marriage by the other party or by both parties to the marriage.” (the Exclusion Clause), assets acquired by either party by gift or inheritance (collectively, Gifts) are excluded except in two narrowly prescribed circumstances, namely, where either the Gifts were used as the matrimonial home or were substantially improved during the marriage by the other spouse or by both spouses. Based strictly on its language, there appears to be no other way for Gifts to be transformed into matrimonial assets. However, in CLC, the Court of Appeal (CA) identified a third avenue based on property law principles, viz., where the recipient spouse of the Gifts manifested a clear and unambiguous intention to treat them as part of the matrimonial pool.
2. In this article, I first examine the CA’s reasoning for its conclusion. Thereafter, I consider its impact on its earlier decision in Wan Lai Cheng³Wan Lai Cheng v Quek Seow Kee and another appeal and another matter (2012) 4 SLR 405. where the CA grappled with the issue of whether gifts by one spouse to another (Inter-Spousal Gifts) qualify as a “gift” under section 112 (10). Relevantly, the CA stated that in determining that issue, the intention of the gifting spouse is irrelevant.⁴First, at (55), per Andrew Phang JA: “(n)othing in section 112 (10) provides that the mere expression of an intention to bring non-matrimonial assets into the pool of matrimonial assets suffices to take such assets out of the ambit of the Exclusion Clause.” Second, at (116), per VK Rajah JA: “this pragmatic approach in construing section 112 (10) also dispenses with the need for the court to laboriously inquire into the reason(s) as to why each asset is held in a particular spouse’s name. Such an exercise will often prove both time-consuming and futile as most transactions involving such assets will not adequately reflect the spouse’s intentions.” There is thus a clash of views apropos the relevance of intention, a point the CA in CLC said it will leave “to be considered more fully on an appropriate occasion in the future”⁵(51). (since the issue of Inter-Spousal Gifts did not arise in CLC).

Examining CLC

3. Part of the husband’s assets comprised Gifts from his father (the Disputed Assets). The wife nonetheless contended that they were matrimonial assets because the husband had demonstrated a clear and unambiguous intention to treat them as part of the family estate. She relied on, among others, the fact that the husband had referred to the Disputed Assets as “our” assets in his written communications to her. ⁶(88) – (90).
4. The CA agreed that the husband’s intention was a relevant consideration holding that⁷(64). “[t]his is a matter of applying ordinary property law principles that are not excluded by [Section 112 (10)]. A spouse who has a proprietary interest in a non-matrimonial asset naturally has the right to deal with that asset in any way the spouse wishes, including by bringing it into the matrimonial pool.” The CA gave the following reasons:
   1. The language of section 112 (10) is silent on the issue.⁸(39).
   2. The relevant parliamentary material indicated that “Parliament’s concern was to safeguard gifts and inheritance from third parties, rather than with spousal gifts inter se.”⁹(41).
   3. The earlier cases had not laid down as a matter of general principle that the court cannot have regard to the intentions of spouses.¹⁰(43) – (50).
   4. The text in the Exclusion Clause is broad enough to cover any inter-spousal gift.¹¹(50).

5. On the facts, the CA agreed with the wife that the husband’s description of the Gifted Assets (“our” assets) showed his intention to regard them as matrimonial assets. In addition, he had deposited some of the Disputed Assets into their UOB Joint Account which the wife was free to operate; this raised the rebuttable presumption that the transferring spouse intends to share the said moneys with the other.¹²(92). Thus, the CA included the Disputed Assets in the matrimonial pool.
6. The lesson from CLC is that to ensure that their gifts and inheritances stay out of the matrimonial pool, recipient spouses should refrain from conduct which may be construed as an intention on their part to share those assets with their spouse.

How CLC Impacts Wan Lai Cheng

7. In Wan Lai Cheng, the CA had to deal with two categories of Inter-Spousal Gifts, i.e., Pure Inter-Spousal Gifts and Inter-Spousal Re-Gifts. We explain the difference between the two by way of the following examples:
   1. Example 1 – Pure Inter-Spousal Gifts: On the birth of their first child, the husband gifts his wife a valuable vintage ring purchased using monies he earned during the marriage through his own efforts.
   2. Example 2 – Inter-Spousal Re-Gifts: We have the same situation as Example 1 except that the vintage ring was an inheritance from the husband’s mother.

8. I now discuss Wan Lai Cheng and examine how, if at all, the CA’s reasoning in CLC impacts it.

(a) Pure Inter-Spousal Gifts

9. One of the issues concerned the wife’s shares in a company called Skeve which was incorporated to hold a property purchased by the husband during the marriage using his own funds. As the husband had gifted those shares to her, the wife argued that it was a “gift” and thus an excluded asset.
10. The CA disagreed. Andrew Phang JA, who delivered the leading judgment, was of the view that Parliament could not have intended Pure Inter-Spousal Gifts to fall within the ambit of “gift” under the Exclusion Clause. His Honour reasoned that such gifts embody, by its very nature, the initial effort expended by the donor spouse in the original acquisition of the gift. Therefore, excluding the gift from the pool of matrimonial assets would be to deny recognition of the initial effort expended by the donor spouse.¹³(40). Therefore, under Wan Lai Cheng, the husband in Example 1 is entitled to a share of the vintage ring on a divorce notwithstanding that he intended a gift to his wife. Crucially, Andrew Phang JA came to his conclusion without having any regard to the intention of the donor spouse.
11. Would the outcome be different if one applies the reasoning in CLC? The answer is “yes” because as part of its reasoning, the CA expressed the view that¹⁴(50).Note: All emphases in passages quoted in this article are added. (emphasis added):
    

    … a gift from one spouse to another… should be given effect to, no matter the source of the gift. This is even if, for example, the gift had been acquired during the marriage by the gifting spouse’s own efforts [i.e., a Pure Inter-Spousal Gift] and then given to the other spouse for the other’s sole use whether to mark an occasion such as a birthday or as an ad hoc mark of affection or for any other reason …

    Based on the above passage, the vintage ring in Example 1 (and the wife’s Skeve shares in Wan Lai Cheng) would not be matrimonial assets if one applies the reasoning in CLC. There is thus a clash between the two.

12. This writer opines that there are three reasons for overturning Wan Lai Cheng on this point when the opportunity arises:
    1. Its ruling is wholly inconsonant with the concept of a gift which, by definition, is something a person (the donor) willingly gives to another (the donee) without any compensation in return. It would therefore do violence to the ordinary meaning of the word to permit the donor to later “clawback” part of the gift.
    2. Its ruling may cause grave injustice to the donee spouse. Take a situation where a husband persuades his wife to forsake her career to focus on raising their children. Years later, the husband decides to gift a bungalow to the wife in appreciation of her dedication to the children. On a divorce, applying Wan Lai Cheng means that she will have to give up a share of the bungalow to the husband despite having given up her career based on his unequivocal representation that it was a gift.
    3. In CLC, the CA endorsed the cautionary words of VK Rajah JA in Wan Lai Cheng that not all inter-spousal transfers of assets take the form of gifts – there may be a myriad of other reasons for the transfers. Therefore, it is “especially important” that the Court examines whether a true gift – one where the transferor intended a permanent renunciation of his or her beneficial interest in the asset – was intended.¹⁵(55) – (56). It is only where such intention is established that the transfer amounts to a “gift” under the Exclusion Clause. The point is that determining whether the spouse intended a true gift is the control mechanism which dictates whether the asset remains a matrimonial asset. This is a far better approach than the one in Wan Lai Cheng which completely disregards the gifting spouse’s intention.

13. In conclusion, the position should be “once a gift, always a gift” – the donor ought not to be permitted to backtrack on his intention.

(b) Inter-Spousal Re-Gift

14. In addition to the Skeve shares, the husband gifted the wife shares in two other companies (Hawick and Kelso) which he incorporated to hold two properties which he had acquired by inheritance. That is, it was an Inter-Spousal Re-Gift.
15. Andrew Phang JA concluded that the Hawick and Kelso shares were “gifts” and thus not matrimonial assets. His Honour started off on the basis that the two properties were to begin with not matrimonial assets. The question then was whether the re-gifting “converted” them into matrimonial assets since it “expresses the intention that the asset which is the subject of the inter-spousal “re-gift” should become a matrimonial asset.”¹⁶(54). His Honour concluded that such “conversion” is not permissible as:
    

    55 … Nothing in s 112(10) provides that the mere expression of an intention to bring non-matrimonial assets into the pool of matrimonial assets suffices to take such assets out of the ambit of the Exclusion Clause. … Assets which are acquired by a spouse by way of a third-party gift or an inheritance thus fall outside the pool of matrimonial assets even if they are subsequently re-gifted as an interspousal “re-gift” ...

    Therefore, based on the above, the vintage ring in Example 2 is not a matrimonial asset.

16. 16. Andrew Phang JA was cognisant that the effect of his approach is that a spouse who receives an inter-spousal re-gift may be in a better position than a spouse who receives a “pure” inter-spousal gift. However, His Honour explained¹⁷(57) – (58) that this anomaly could be addressed by taking the donee spouse’s non-matrimonial property into account in the division exercise as permitted under section 112 (2) (h) read with section 114 (1) Charter. Those two provisions “may justify that party receiving a smaller share of the matrimonial assets available for division.”¹⁸(58).
    17. Turning now to CLC, the following passage in the judgment makes clear that the outcome would be the same as in Wan Lai Cheng if its reasoning is applied:¹⁹(64).

… where one of the parties to the marriage has received a gift or inheritance but evinces an intention to deal with that asset by, for example, giving it to the other party or incorporating it into the family estate, it is not inconsistent with s 112 for the court to give effect to such intention …

18. In conclusion, whether one adopts Wan Lai Cheng or CLC, the end-result is the same – the re-gifted asset is not a matrimonial asset.

(c) A Third Category of Inter-Spousal Gifts

19. Let us suppose that the vintage ring in Examples 1 and 2 was purchased by the husband prior to the marriage using his own funds. In short, an Inter-Spousal Gift of a Pre-Marriage Asset. If not for his gifting, it would be an excluded asset under section 112 (10) (a). Does the gifting alter its status? Although this issue did not arise in Wan Lai Cheng, Chan Sek Keong CJ was of the view that:²⁰(106).
    

    … where one of the parties to the marriage has received a gift or inheritance but evinces an intention to deal with that asset by, for example, giving it to the other party or incorporating it into the family estate, it is not inconsistent with s 112 for the court to give effect to such intention …

20. Put in another way, such inter-spousal gifts are “gifts” within the meaning of section 112 (10) and are not matrimonial assets unless they are transformed by the “substantial improvement” exception. This was also the view adopted by the Appellate Division in CLS v CLT [2022] 2 SLR 1043 reasoning that these assets “had not been obtained with any effort expended by the donor spouse during the marriage”.²¹(46)(c).
21. This scenario did not arise in CLC. However, given the CA’s pronouncement on the relevance of the donor spouse’s intention, the same result will be reached.

Conclusion

22. The writer respectfully submits that the Court’s over-arching consideration when dealing with inter-spousal transfers (to use a neutral term) is to ascertain whether a true gift was intended. If the answer is “yes”, then such intention must be given effect to regardless of the type of Inter-Spousal Gift.
23. I end by posing two matters arising from Wan Lai Cheng and CLC that may require further clarification by the courts:
    1. It will be recalled that in Wan Lai Cheng, Andrew Phang JA was of the view that in the Inter-Spousal Re-Gift scenario (of third party gifts or inheritances), adjustments can be made in the division award under section 112 (2) (h) read with section 114 (1) Charter to reflect the fact that the donee spouse has received from the donor an asset which has been declared to be a non-matrimonial asset. Should this be the position for “Pure” Inter-Spousal Gifts which, if the reasoning and expressed views in CLC were applied, would not form part of the matrimonial assets? What about the third category of Inter-Spousal Gifts (of pre-marriage assets)? This writer is of the view that the answer in both (latter) situations is in the affirmative. This is because section 112 (10) deals only with the issue of what goes into the matrimonial pool and does not address how those assets are to be divided. In contrast, section 112 (2) (h) read with section 114 (1) Charter explicitly asks the Court, in both dividing the assets as well as in ordering maintenance, to have regard to “the … property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future”.
    2. In CLC, the CA ruled that the mere existence of the donor’s intention to treat Gifts as part of the family estate suffices to bring them into the matrimonial pool. Presumably, this is because an expression of intention (even one made orally) can, under property law principles, amount to an express trust: see Paul v Constance [1977] 1 WLR 527 and BTB and another v BTD [2019] 4 SLR 1289. Does this reasoning apply where the intention was expressed orally and the Gifts comprise immovable property? This question arises because section 7 (1) Civil Law Act makes clear that a declaration of trust “respecting any immovable property or any interest in such property must be manifested and proved by some writing signed by some person who is able to declare such trust.” This writer is of the view that an oral declaration will not suffice. The reason is that since the CA’s decision in CLC is based on property law principles, those same principles (including section 7 (1)) must be adhered to in the scenario described.