We chat to a Hong Kong-based lawyer specialising in areas such as family law. As founders of firms seek financial backing, their investors often look more favourably on entrepreneurs who have prenups and other structures to shield assets if a relationship fails.
The tool of a prenuptial agreement may sound clinical and calculating to some ears, but in fact it can have a positive effect by underscoring the seriousness of a long-term relationship, a senior Hong Kong lawyer argues.
Just as important, businessmen and women who are seeking financial backers must assure investors that marriage break-ups will not put the capital of others at risk. The end of a marriage, particularly an acrimonious one, doesn’t just affect the parties and children, Alfred Ip, founding partner at Hugill & Ip, said.
Some of the bigshots of Silicon Valley understand the argument, for example. Google co-founder Sergey Brin and Anne Wojcicki, who helped found personal genomics company 23andMe, had a prenup when they married in 2007. They split in 2015 and Brin’s stake in Google wasn’t affected (source: Bloomberg, October 2019). Another case was that of Oracle’s Larry Ellison, who has been through several marriages but none of his divorces affected his stake in the Californian firm.
More people in Hong Kong are becoming aware of the use of prenups. People are learning more about it, and choosing either to use them or they seem to forget all about it, Ip told this news service in a call.
“I don’t see it [prenup] like a precaution in the event of an unfortunate marriage. Instead, it is expectation management that a reasonable adult would do. We cannot choose our parents or siblings, but a spouse is someone you choose and before forming a committed relationship, it is responsible to lay out some of the expectations and planning so that each partner should know what they are getting into,” he continued.
“You are setting expectations from the beginning. People will know the consequences and not have regrets,” Ip said.
Ip spoke to this news service as it examined a series of topics under the umbrella of “protecting the client,” covering topics such as family law, reputation protection, cybersecurity and physical safety. In that context, instruments such as divorce law are tools in a box.
For some time, London has been seen as the “divorce capital of Europe,” attracting legal business from HNW individuals. This has been the case, for example, with people from Russia, as well as persons from the Middle East, etc.
As for Hong Kong, while there have been changes to its jurisdictional autonomy, its common law heritage is still significant.
“Most people will choose Hong Kong [as a divorce location] because they are already holding assets in Hong Kong. Often, it will be a company holding assets in Hong Kong, such as a Cayman Island company that is listed in Hong Kong that might have underlying assets in China, etc…they are a very common structure,” Ip said.
This creates a lot of activity on the Hong Kong Stock Exchange, with lots of listings, he continued.
Those with a controlling stake in these listed companies may not necessarily visit Hong Kong very often. They need to have a “substantial connection” to Hong Kong for these structures to ensure that they can have a marital law case decided in Hong Kong.
Hong Kong courts require a full and frank disclosure of assets in these cases. With common law, there is a general 50/50 split of assets. This is valued by the “weaker” party to a divorce, usually by the one deemed to be a dependent, Ip said.
The same broad approach is followed by courts in Singapore.
Prenups are not 100 per cent reliable, legal experts say. For example, a June 2023 briefing note from international law firm Withers, says: “The key is that the couple must have entered into the agreement willingly and with all the material information to their decision before signing the agreement, intending the terms to govern the financial consequences of the marriage coming to an end, and that it is fair without creating an evident disparity in wealth amongst the couple. Ultimately, nuptial agreements protect both partners and are expected to hold up in court.”
Ip concurs. “Our usual advice to clients is that prenups are not foolproof or watertight and that they should definitely consider a pre-marital trust.”
A key concern is ringfencing pre-marital assets from spousal claims. Identifying that ringfence is often where legal arguments become complex, Ip continued.
“The court is not going to allow the potential paying parties to get away with financial responsibilities for paying the assets available for providing for a dependent,” he said.
Ip said that with a marital trust, the assets in the trust aren’t part of the marital assets and not part of the claims, but the structures must be set carefully to avoid being attacked by the opposite party during a divorce.
There are cases, for example, where a person gets married relatively late, having already built a large fortune. In those instances, it makes sense to shield the pre-marital assets, etc. In younger marriages, this is less relevant as there is more mingling of the assets.
Protecting an investment
Where business founders and investors are concerned, the prenup takes on an importance not always understood.
In some cases, such as venture capital-backed firms, the VCs might require the investee company owners to have prenups and take other steps to ensure that if they get divorced, investment losses are limited as much as possible, Ip said, adding: “We have come across cases like that. Usually the founders will see it as a legitimate request to get a prenup in place.”
The article written by Tom Burroughes was originally published on Wealth Briefing Asia
