Family Focus Week: Marital Agreements as Necessary Tools for Damage-Control on Rainy Days

Family Focus Week: Marital Agreements as Necessary Tools for Damage-Control on Rainy Days

Family Focus Week: Marital Agreements as Necessary Tools for Damage-Control on Rainy Days 653 382 Alfred Ip
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The prospect of getting married is one of the most exciting times in most people’s lives and pre-regulating the unknown future should things go wrong is probably the most unwelcoming idea. However, in today’s multi-dimensional and vocal society, more and more couples are taking a choice to have their marital agreements in place before they join hands as married couples.

 

The practice of entering into marital agreements is more common in the United States and some European countries, but it is becoming increasingly widespread in Hong Kong partly because Hong Kong has a high rate of divorce among the locals as well as the expats. Sometimes, the idea of having a marital agreement may come from other family members or fellow business partners with an intention to preserve family assets or avoid disruption to business following the other business partner’s divorce.

Prenups in Hong Kong and in other jurisdictions

A pre-nuptial agreement is drafted and signed before a marriage, while a post-marital agreement is made during the marriage or when a couple decides to take the route of a separation (in the latter case these are normally known as “separation agreements”). Often, these agreements include terms relating to financial arrangements, such as how the couple will manage their respective finances, the segregation of assets, and in the event of divorce/separation, the spousal support, maintenance for children and how the family assets shall be split. An important feature of such agreements is the definition of what constitutes marital or joint assets and conversely, what assets should not be claimed by the other spouse in the event of a divorce.

When the couple have different nationalities or are living in Hong Kong temporarily for job commitments, then their pre-nuptial agreement might need to take into consideration their future place of residence in order to ensure that the pre-nuptial agreement signed in Hong Kong can be followed, enforced or at least taken into consideration by a foreign court.

Although pre-nuptial agreements are yet to be legally binding in the UK and Hong Kong, a Supreme Court ruling in 2010 saw the introduction of a presumption that the court should hold spouses to a nuptial agreement (whether made before or after the marriage) if both parties understood the implications of such agreement. This legal position is similar in Hong Kong. Each of the parties to the pre-nuptial agreement must have had opportunity to seek independent legal advice and willingly and freely enter into such agreement.

One of the main elements a judge will look into when considering the terms of the pre-nuptial agreement is whether such agreement is fair. Fairness in every case is different depending on the family circumstances and needs. In addition to the principle of fairness, the court must ensure that the terms of the pre-nuptial agreement do not contravene any public policy.

For instance, if a spouse is left destitute for entering into an unfair pre-nuptial agreement or if there is an element of undue influence, the court would unlikely make an order in terms of such agreement.

Another example where the court would hesitate is throughout the period since the marriage, the parties’ financial situations have changed dramatically (for the better or worse), thus what was initially agreed under the pre-nuptial might not be “fair” or no longer reflect or represent the parties’ living standard during the marriage.

Another element that the Court will consider is whether the marriage would have gone ahead anyway without a pre-nuptial agreement. Hence, the earlier the parties sign the pre-nuptial agreement the better. It is worth noting that the Court may refuse to uphold the terms of a pre-nuptial agreement if it is made less than 21 days before the marriage. If a pre-nuptial agreement is signed too close before the wedding, one may consider signing a post-nuptial agreement to reaffirm the terms of the pre-nuptial agreement.

It is more likely for the court to hold the parties to the terms of the pre-nuptial agreement if the parties, when deciding to enter into such agreement, have each sought independent legal advice, made full and frank disclosure and demonstrated clear understanding of the terms which they had agreed to including the implications thereof. Hence, it is important to ensure that every proper step has been taken to avoid any possible challenge by the other party.

How do Separation Agreements work?

Separation agreements are more common because they are valid contracts, according to section 14 of the Matrimonial Property and Proceedings Ordinance (“MPPO”), Cap. 192 and courts have affirmed that such agreements should be upheld unless there is a compelling case of unforeseeable circumstances.

Such agreements can specify the period of separation and clarify responsibilities (in terms of care and financial support) involving the couple’s children. These can result in a deed of separation, which are generally followed by the court when divorce proceedings are issued. In some cases, the court might not fully adhere to the deed as the court still has the final say in resolving the parties’ disputes.

Such agreements can also include the option of mediation as an alternative way to settle the parties’ disputes without the need of going to the court. Family mediation is a problem-solving process designed to help couples to reach an amicable settlement based on the terms already specified in the separation agreement or otherwise when circumstances have drastically changed as compared to when the agreement was negotiated and agreed.

All of the aforesaid would require assistance from professional lawyers, in particular the planning or negotiation process. Our team at Hugill & Ip has extensive experience in dealing with Hong Kong family laws – so kindly get in touch with us to find out how we can help.

This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.

Alfred Ip

Alfred Ip

Alfred assists high net-worth individuals (HNWIs) in handling their wealth-related issues, such as contentious and non-contentious trust and probate, mental capacity, family office, amongst other wealth management matters. He is also a leading Dispute Resolution lawyer with over 20 years of experience in Hong Kong. Moreover, Alfred helps clients with issues regarding Family Law.

All articles by : Alfred Ip
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