Key Considerations When Entering Prenuptial Agreements

As is common in most societies, family law is ever evolving. Agreements made by couples before or after marriage are becoming increasingly popular. In particular, premarital agreements – generally known as prenuptial agreements or simply prenups. In essence, prenups are contracts that individuals enter to determine the rights and obligations of each spouse, should their marriage end up in separation or divorce.

We have previously discussed the topic of marital agreements in our Family Focus Week article “Marital Agreements as Necessary Tools for Damage-Control on Rainy Days“.

This Q&A will examine the essential points that couples should consider before a prenup is put in place.

Q1: Who can best negotiate a prenup?

The dynamics of prenup negotiations are certainly difficult and couples will wish to avoid any bad feelings resulting from such negotiations. After all they are about to spend the rest of their lives together, a heated prenuptial negotiation may set a bad precedent.

Future finances will be an important topic and both parties should hire independent legal advice to ensure negotiations go as smoothly as possible. Solicitors are best equipped to negotiate and draft a prenup on the future spouses’ behalf. Moreover, the agreement may not be enforceable without the involvement of proper legal counselling.

Q2: How can a prenup affect the relationship between the two families of origin?

An initiating party may prefer a prenuptial agreement to be put in place prior to the marriage to protect family wealth and exclude family property and assets from the marriage. The other spouse’s family could feel embarrassed or demeaned by such action. If not handled tactfully, it might result in extended family conflict that can have long-lasting effects throughout the duration of the marriage.

Q3: How can family wealth and inheritances be protected?

Assets acquired through family wealth can be protected as non-matrimonial assets with proper estate planning and/or spousal agreements. Often, prenups are set up to govern financial arrangements related to family finances, segregate certain family assets and protect inheritances that would be (or have been) received by the parties by specifically excluding them from the matrimonial assets.

Q4: How much does fairness matter?

Bearing in mind that fairness depends on the unique facts and circumstances surrounding each couple, prenups must be fair. Courts routinely enforce prenups that result in a somewhat unbalanced outcome, but they may hesitate to enforce a prenup if it will create a significant disparity in wealth. The disadvantaged spouse would need to be close to destitute or requiring public benefits for a prenup to be deemed unfair and unenforceable. As in the UK case Bennett v. Bennett, the Court expressed that “it is in the public interest that the wife and children of a divorced husband should not be left dependent on public assistance or on charity when he has the means to support them”.

When a couple who have a prenup decides to divorce and the prenup seems to result in an unfair result to one spouse, he/she may go to Court to try and have the prenup set aside. When a prenup is set aside, the Court will be relied on to make decisions about alimony and matrimonial pot division. Litigation that involves the validity of a prenup can be very expensive and time-consuming, in some cases it can last years.

If the parties’ financial circumstances have dramatically improved or worsened during the course of the marriage, what was initially agreed in the prenup might not be fair or reflective of the parties’ living standard. Hence, the terms and conditions in a prenup cannot restrict parties from applying to the Court for orders regarding financial arrangements.

Q5: What if pressure is used to influence the other party to sign a prenuptial agreement?

Parties must sign the agreement voluntarily and no pressure, duress or undue influence can be exerted on either party. The couple should be allowed to have enough time to negotiate the terms and conditions of the agreement. For example, a party pressuring a future spouse to negotiate a prenup days before marriage will likely not sit well with the Courts should disputes arise down the line.

Q6: When could Hong Kong Courts challenge the validity of the agreement?

Ultimately, it’s the Court that determines maintenance and/or other financial awards in divorce proceedings and how much weight needs to be given to a prenup. In any circumstance, the agreement has to ensure a reasonable provision for the financially weaker spouse in case of separation or divorce. An even greater concern of the Courts is the interest and welfare of eventual children. The prenuptial agreement cannot allow any of its terms to prejudice the reasonable needs of any children of the family.

The Courts will not necessarily adhere to a binding prenuptial agreement, if it deems necessary, it can exercise its discretionary powers and abandon a prenup.

Q7: Do parties need to disclose all assets before a prenup?

The parties must provide “full and frank disclosure“. They have a duty to give a full, frank, clear and accurate disclosure of their financial position, including assets and properties. In fact, they need to sign statements confirming that their disclosure is full and true.

The consequences of partial or false disclosure is that an order made can be set aside and proceedings for contempt of Court could be brought against the wrongdoer, which could lead to a to a fine or even imprisonment. A guilty party may also be ordered to pay some of the legal costs incurred by the other party.

A full and frank disclosure is significant, as without it, solicitors and the Courts are unable to properly assess fairness. If the financial situation is not reflecting reality, then any settlement reached according to that financial situation is not going to be fair and will not hold up.