Nuptial Agreements: Perspectives from England and Hong Kong
Nuptial agreements have become increasingly popular, particularly over the last decade, and are now well established as a wealth management tool for those considering marriage (or already married). In many jurisdictions, nuptial agreements are commonplace and far from being reserved for the ‘super rich’ or a controversial subject with one’s betrothed. A Nuptial agreement will normally set out how to divide assets on a future breakdown of the marriage. It usually deals with pre-marital assets, and what happens to assets built up during the marriage or received during the marriage from a non-matrimonial source (e.g. inheritance). Consideration also needs to be given to maintenance provision if any, if the marriage breaks down.
In this article, we consider some of the key factors in relation to nuptial agreements from the perspective of the English and Hong Kong courts.
Attitudes toward Nuptial Agreements in England
In England we are seeing that the attitude of younger generations to nuptial agreements is now much more accepting and practical. We have also seen the rise of nuptial agreements for those who may be entering into a (possibly second or third) marriage in later life and wish to protect their children and assets they have built up. In cases where one party has significant inherited wealth they wish to protect, or a business, there can be external family pressure (or pressure from shareholders or trustees) to enter into a nuptial agreement. Another priority can be the reduction in the amount which might otherwise have been paid to the financially weaker party on divorce.
Nuptial Agreements in Hong Kong: Unique Considerations
Nuptial Agreements are also popular in Hong Kong, not least because it is commonplace for younger generations to hold assets on behalf of their parents or relatives, and it is therefore essential to clarify in an agreement such as this that those assets do not belong beneficially to the party about to be married. Furthermore, Hong Kong has a significant expat community, and those expats who were married overseas may have, for example, a European-style marriage contract which may not be enforceable in Hong Kong, and so they need to consider the possibility of having a post-nuptial agreement.
How the English and Hong Kong Courts deal with Financial Applications
A party to a marriage can broadly make a claim for transfer of property (for instance a house), a lump sum payment, maintenance for a term or until remarriage, variation of a nuptial settlement and pension sharing. Financial claims can also be made in respect of children.
The English court has a wide discretion to make an order which is fair. The welfare of any minor children is given first consideration.
There are various statutory factors which are taken into account – the parties’ income and resources, needs, age and length of marriage, any disabilities the parties may have, contributions both financial and otherwise, the parties’ conduct, standard of living and the loss of the chance of acquiring any benefit (normally loss of pension rights).
Assets generated during the marriage are normally divided equally, and pre-marital assets, inherited or gifted assets, may be treated differently, but will be called upon if required to meet needs.
The approach in Hong Kong follows that of the English Court, with some minor differences. For example, there is no power to make an order for pension sharing in Hong Kong. The Hong Kong Court, unlike the English Court, also does not have any duty to consider whether to order a clean break (i.e. to leave the parties with no financial ties/ongoing maintenance).
Are Nuptial Agreements Legally Binding?
In England and Wales, nuptial agreements are not strictly binding and the jurisdiction of the court cannot be ousted. However when considering a financial application, the court may give decisive weight to a nuptial agreement.
In the seminal case of Radmacher v Granatino [2010] UKSC 42 the Supreme Court held that when a court is exercising its discretion to make an order in financial proceedings on a divorce:
"The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to the agreement."
The case of SPH v SA [2014] HKCFA 56 in the Court of Final Appeal in Hong Kong confirmed that the principles enunciated in the Radmacher case should also be regarded as law in Hong Kong.
Agreement Must be Freely Entered Into
Both parties should enter into a pre-nuptial agreement voluntarily, without undue influence or pressure. It is recommended that agreements should be entered into at least 28 days before the marriage. A post-nuptial agreement is unlikely to have the same issues with regard to timing and pressure (but then there may be less incentive for the agreement to be finalised).
Legal advice will assist in showing that the agreement was freely entered into, and each solicitor usually signs a certificate confirming that they have explained the meaning and the advantages and disadvantages of signing the agreement.
Parties Must have a Full Appreciation of the Implications of the Agreement
Each party should be in possession of all the information which they need to come to a decision about the implications of the agreement (and any claims they are potentially giving up). This is usually achieved by the exchange of financial disclosure prior to the agreement being entered into (and a summary can be attached to the document itself). Again, legal advice will assist in showing that a party understood the implications of the agreement.
It is more common in Hong Kong for parties to waive their right to financial disclosure, but it is not recommended as it increases the possibility of the agreement being successfully challenged down the line.
It Must be Fair to Hold the Parties to Their Agreement
If a nuptial agreement in effect accurately sets out what the court would have judged as fair, it will have provided for certainty and clarity, but in many cases the object of the exercise is to provide less than a court might otherwise have done (for example, a wealthier party to the marriage seeking to protect their assets). In any situation the agreement must provide for needs.
If the parties are older with assets of their own (with no children), it is likely to be easier to show that the agreement meets the fairness test than if the agreement was reached many years ago and the couple’s situation has changed. For instance, one party may have become much wealthier than expected, or suffered unexpected misfortune such as being struck down by illness.
A decision has to be made as to whether to have a review clause. This could be problematic as if the marriage is going well, the parties are not going to want to revisit the agreement (and one party could delay/withhold their agreement). Crucially, the validity and effect of the agreement could be lost if a review provided for in the initial agreement did not take place.
What to Include in a Nuptial Agreement
A nuptial agreement will normally set out how to divide assets on a future breakdown of the marriage. It may be straightforward and define what each party owns now and state that each party keeps what they have when they marry, to include all increase in value and income from assets.
Consideration needs to be given to the financial provision to be made, if any, if the marriage breaks down - always taking into account that needs have to be provided for and the first consideration is the welfare of any minor children of the family.
Certainty for the parties upon a divorce is often a key goal and this can be achieved in different ways after full consideration of the circumstances and what the couple wish to achieve. The agreement is likely to define "matrimonial property” and "non-matrimonial property” - matrimonial property usually includes assets acquired during the marriage and assets held in joint names whereas non-matrimonial property usually includes pre-marital assets, inherited assets and gifts.
In the recent case of BI v EN [2024] the English court considered the applicability of a French marriage contract electing the separation des biens (separate property) regime on a divorce. The husband was an entrepreneur and at the time of the divorce the parties’ assets were £115 million (and the parties agreed that absent the agreement, these would all be matrimonial assets and thus the wife would have a sharing claim over them). The court found the contract was valid and should be upheld. The court came to an outcome generously assessing the wife’s needs and made an award on that basis (which amounted to about 20%). This case shows the thought that needs to be put into the technical elements of the agreement.
Jurisdiction and Choice of Law in Nuptial Agreements
Another point is the choice of jurisdiction and choice of law clause. This can be crucial as in effect the parties are selecting the forum and jurisdiction to deal with any future divorce. The forum and choice of law may be chosen for various reasons (i.e. where assets are located) but can also be strategic, for example, where it would be most favourable for a particular party to have financial claims resolved (for example, the English courts are often seen as very generous to financially weaker spouses). An agreement cannot, however, bestow jurisdiction on England if the court there would not otherwise have jurisdiction.
Although habitual residence is a criteria to commence proceedings for divorce in Hong Kong, like in England, the Hong Kong Court will also have jurisdiction if there is a ‘substantial connection’ to Hong Kong. If there is such a connection, the Court in Hong Kong will readily deal with the future divorce. Neither country will apply any foreign law, irrespective of what the agreement may say about choice of law.
Having a pre-nuptial agreement may provide a degree of certainty and predictability in the event of divorce. It is usually helpful for parties to consider how they wish to deal with finances during the marriage and upon divorce so that differences of view can be brought into the open. Nuptial agreements are particularly useful to set out what is intended to be kept separate and what is to be shared.
