Although the previous government had made calls for women's rights earlier in the 1900s, it was Chairman Mao Zedong who began systematically forcing equality between the sexes, in the belief that it would help China become a world power. In 1950, China's very first marriage law was enacted. It took bold steps to give men and women equal rights, banning bride sales, arranged marriages, child betrothals, concubines, and legalizing divorce.
Though it was legal for both women and men to file for the annulment of a marriage, divorce was only permitted failing "mediation and counseling", and couples needed formal permission from their employer or neighborhood committee before it was considered. In 1985, by which time the wheels of China's economic reform process were turning steadily, divorce was still relatively rare.
Since then, China's accelerated economicgrowth has been accompanied by mounting pressure to achieve financial success, and the number of divorces has risen correspondingly. Between 1985 and 2009, China's divorce rate quadrupled, from 0.4 per 1000 people to 1.85 per 1000.
While there are several factors that contributed to the upsurge, an amendment to the marriage law in 2003 was central. The formal permission from employers or neighborhood committees that had previously been required of couples fell away, and the procedure was greatly simplified, allowing people to get divorce certificates more easily. Since 2003, China's divorce rate has risen at an average of 7.65 percent a year, according to a report published by the Ministry of Civil Affairs in early 2011. And the trend only seems to be on the rise.
The first three months of 2011 saw a 17 percent increase in the number of couples that formally notified the government of the end of their marriage, compared to the same period in 2010, according to a report published in on 5 May 2011 in the capital's top-selling Chinese-language daily, the Beijing Times. The statistics may be particularly pertinent to Beijingers, who are heading the trend, with divorce rates in the city almost doubling between 2004 and 2010, according to government data. 2009 figures show that divorce rates in Shanghai were on the capital's tail at 38 percent, compared to Beijing's 39 percent. Shenzhen and Guangzhou were not far behind, at 36 and 35 percent respectively. In looking to the reason behind the increase in divorces, statistics point to the pressure of a fastpaced life in China's major commercial hubs. Soaring housing prices in cities throughout China and difficulties faced by career-oriented working mothers -many of whom raise children away from their hometown, without their family's network of support - have also been blamed for causing stress that may lead to the breakdown of a marriage.
The fact that China's first only-child generation - often referred to as the post- 80s generation - began getting married in the early 2000s is no coincidence, and is perhaps the most cited cause of escalating divorce rates. Selfishness, immaturity and materialism are among the characteristics associated with "post- 80s" offspring, due to being raised in households in which their parents only have one child to dote on, often with two sets of grandparents adding to the amount of undivided attention these children receive. Statistics from a Beijing district court confirm speculations about the impact of this era of child-rearing. During each of the five years before the court released these figures in 2009, the divorce rate among under-30s doubled compared to the previous year. Ninetyseven percent of the under-30 couples were only children. Today, in a society which requires prospective husbands to have a certain degree of wealth before being considered "marriage material", it is unsurprising that money-motivated marriages are becoming increasingly common.
As more people become privy to the proliferation of divorce in China, preparing themselves for the worst begins to seem like the only sensible option. Divorce - and its emotional and financial repercussions - may be far from every bride or groom's mind on their wedding day, but high net worth individuals who stand to lose millions would do well to take precautions - no matter how unwanted or unexpected the events of the future may be.
Investing offshore is arguably the most effective way of protecting your assets from unforeseen circumstances and, though divorce is just one of many unanticipated and possible events, having a portion of your assets offshore usually covers all bases. There are various ways in which offshore structures can be used to do this, and the choice of method generally depends on the specific needs of the high net worth individual, as well as the distribution of their onshore assets.
Offshore companies, offshore funds and offshore trusts are all viable methods of asset protection, and high net worth individuals are likely to have diversified asset combinations, says lawyer Wang Fan, who advises Chinese clients on offshore wealth management on behalf of Allbright Law Offices. "What high net worth individuals are concerned with is the safety of protecting such assets, namely arranging for their assets to be separated and protected, whether for divorce or other purposes", she explains. All offshore financial products protect assets to some extent, but when a wealthy Chinese spouse specifically seeks to protect their assets against divorce, offshore trusts are considered most conducive. There is absolutely no risk of them being surrendered during a divorce settlement because - by their nature - they legally belong to neither of the spouses in question.
Lawyer Zheng Zhi of Dacheng Law Offices, who also provides advice to high net worth individuals on offshore wealth management , says that the British Virgin Islands is the jurisdiction of choice for most of his clients because of its preferential tax rates and the ease and cost-effectiveness of its services. Chinese clients who are planning to emigrate are in a different category; they do not select offshore financial centers based on convenience or cost. Offshore trusts and other products - as well as onshore transactions, such investments in property - are often key steps in many countries' emigration procedures. Deciding which offshore jurisdiction is best suited to a client's needs is the next step after clearly defining their assets - a process which is particularly important if the goal is to protect them against divorce. "We normally suggest that high net worth individual clients categorize their assets - such as real estate, cash and stocks, corporation equities - before getting married, and then design the appropriate asset management structures accordingly ", explains Allbright Law's Ms. Wang. In terms of the type of assets that can be transferred offshore, Dacheng Law's Mr. Zheng says, "Generally speaking, antiquities, immovable property and securities assets must stay onshore, and cash and stocks can be invested offshore." There are exceptions. "Immovable property and securities assets, for example, can be cashed and then invested offshore." Mr. Zheng also advises couples to sign pre-nuptial agreements. "Pre-marital property should be defined, including which premarital properties belong to whom. Next, the couple should agree on how the postnuptial properties will be divided."
As sensible as Mr. Zheng's advice sounds, pre-nuptial agreements are relatively rare in China. "The concept of a pre-nuptial agreement is generally not accepted by Chinese clients yet", Ms.Wang concurs. "This is for complicated reasons beyond legal ones, such as emotion and personal trust." Chinese adults' wealth is also nearly always tied to that of their family - either because offspring will be expected to support their parents financially in their old age, or because young couples rely on their parents before becoming financially independent. Having family members in the equation plays a major role in determining how assets are divided within a marriage. Prospective husbands who are expected to buy property before marrying are usually satisfying girlfriends' parents' prerequisites, and for particularly wealthy families, it is the parents who often deem their son or daughter's potential match unsuitable if they don't have any wealth of their own.
This is particularly true of the parents of offspring known as the "second generation". Though they were also born in the eighties, this "generation" is different to the "post-80s" progeny known for their selfishness, though the two groups are not mutually exclusive. "Second generation" children were born into wealthy families that began to make their money in the early days of China's economic reform and, over time, have accumulated fortunes of varying worth. With only one child, parents of these children tend to be particularly aware of the threat of a son or daughter's spouse filing for divorce. If adequate legal measures aren't taken in advance - or if a pre-nuptial agreement is signed that protects both spouses equally - they stand to lose a significant portion of the family estate. With divorce on the rise, these "second generation" high net worth individuals - and their parents - are more concerned about protecting their assets than in the past, Ms. Wang explains. "Some of these individuals accumulated their wealth, to a certain degree, from experiencing approximately thirty years of China's reform and opening-up policies. Quite a large number of the socalled 'affluent second generation' and even 'affluent third generation' emerged from these circumstances." Plenty of countries have undergone prolonged periods of economic development, but China is unique in one respect, Ms. Wang points out. "What makes China different from other countries is that China also implemented family planning policies, meaning that today, quite a few high net worth individuals are the only successors within the family."
No matter how much wealth a family or a spouse has, Chinese society is not yet accustomed to pre-nuptial agreements, so suggesting one's husband or wifeto- be signs a pre-nuptial agreement immediately raises suspicions, and may end a marriage before it has even begun. Offshore asset protection is a subtle alternative that more and more wealthy Chinese are considering prior to getting married. "With the high divorce rate in China, high net worth individuals are always eager to find methods which not only prevent them from hurting [a future spouse's] feelings, but protect their family's assets as well", says Ms. Wang.
While the vast majority of Chinese high net worth individuals are male, using offshore structures to protect one's assets from divorce is not necessarily a stereotypical story of gold-digging young women and older, wealthy men. Both Mr. Zheng and Ms. Wang have advised female clients on protecting and distributing their assets in the event of a divorce. One particular case that Ms. Wang handled is testament to how far women have come in China. "This client was female, and owned assets worth approximately RMB 100 million, including movable assets, stocks, funds and so on. She initiated a divorce lawsuit against her husband within a year after getting married because he had an affair. She had fallen pregnant before getting married and so established an offshore trust in New Zealand before the marriage. The trust beneficiary appointed was her child."
Mr. Zheng referred to a successful divorce case in which both spouses parted amicably. The fact that they had planned ahead for unforeseen circumstances like divorce meant that the process went smoothly and was fair to both parties. The husband went to Mr. Zheng's law firm for advice. "My client was an investor. At that time he had one billion renminbi in assets. He had been married for fifteen years; his wife was an executive in a foreign company. They had a son and a daughter, and both of the kids were studying abroad. The couple got divorced because they were basically incompatible. The outcome was that they divorced by agreement: the husband gained custody of the son and the wife gained custody of the daughter. Their joint cash assets and securities assets were equally divided. The overseas investments belonged to the husband, but the husband agreed to pay full child support until their son and daughter were 18 years old. Besides these assets, the couple had established separate offshore trusts [in the British Virgin Islands] for their old age. They had also established trust funds [in the BVI] for their children."
As both lawyers' cases demonstrate, the value of both off shore asset protection and prudent planning cannot be underestimated. They also illustrate that the more knowledge individuals have with regards to the offshore and onshore financial services available to them, the more likely things are to go their way in the - unforeseen, but increasingly likely - event of divorce.
