Last year, the Hong Kong Government amended the law regarding the enforceability of pre and postnuptial agreements. How legally binding are they and should you consider one? DB resident Steve Corbin reports.
No matter what you do in life, planning is often the key to making it work. With this in mind, an increasing number of couples are opting to sign pre and postnuptial agreements. By so doing, they are choosing to make plans for what will happen to their assets should their marriage end. The contents of these formal, written agreements, entered into by a couple before or after their nuptials, vary considerably. They commonly include provisions for division of property, child maintenance and access arrangement, and spousal support in the event of divorce.
In theory at least, pre and postnuptial agreements are there to protect both spouses, the richer and the poorer, in the event of a marriage break-up. Tiger Woods’ divorce in 2010 brought the issue firmly into the spotlight. Known at the time to be worth over US$2 billion, Woods is rumoured to have given his former wife ‘only’ US$100 million when they split. This was thanks to a solid prenup. Approximately 50% of all marriages in Hong Kong end in divorce and, when the legalities kick in, the starting financial point for the courts is a 50:50 share of all property and assets. Therefore, if there is a marked imbalance in the relative wealth of the two parties, they may be well advised to sign a prenup. This means a bride or groom who brought their own assets into a marriage – such as a family-owned company or an inherited fortune – will not lose 50% in the event of a divorce.
Prenups are particularly useful for those starting a second marriage or marrying later in life. They allow people to ring fence what they brought into the marriage from an earlier relationship, and ensure that they can pass it on to their children from that relationship.
Married couples tend to draw up a postnuptial agreement in the event of a change in their circumstances and especially to protect the weakest financial side. Consider this fictitious case study. When Mary and Tom Driver got married in Canada 10 years ago, they had no assets or children, though both were working, and so there was no prenup. The couple relocated to Discovery Bay two years ago, at which time their financial situation changed. Mary gave up working in order to bring up their kids, and Tom was receiving a healthy salary. Mary wanted to ensure that in the event of a divorce, she would be in a good position financially. Therefore the couple signed a postnup to ensure that, should they separate, they would both know how their assets and income would be split.
A viable option
It’s clear that having everything laid out in writing in advance should speed up a divorce and help avoid rancour. But until June last year Hong Kongers often decided against making pre or postnuptial agreements because there was no guarantee they would be upheld in court. Recent developments in the law have made these contracts much more viable.
In June 2014 the case of SPH v SA 3 HKLRD 497, (2014) 17HKCFAR 364, decided by the Court of Final Appeal, brought Hong Kong into line with England and Wales in regards to pre and postnuptial agreements. As such, Hong Kong courts will now generally honour any pre or postnuptial agreement freely entered into by both parties.
This does not mean that all pre or postnuptial agreements will be upheld, nor are they automatically binding. It’s essential that each party had the opportunity to obtain independent legal advice before the agreement was signed and that they entered into the agreement voluntarily. The court will consider whether the terms of the agreement meet everybody’s needs, including those of any children, and will check to see that all assets were disclosed at the time the agreement was signed.
Given recent court rulings, people can assume that pre or postnuptial agreements will be upheld unless they are shown to be significantly unfair to either party. A further aspect to consider is that it is unlikely to matter where an agreement was signed, provided its validity is not in doubt.
Avoiding legal battles
The divorce rate in Hong Kong is spiking at an alarming rate. From 1986 to 2009, the number of divorces increased by 299% (from 4,257 to 17,002) and in 2011, there were 21,000 applications for divorce. Without a pre or postnup, the way you come out of a divorce can be something of a lottery and if you don’t have an upfront agreement, the legal battle can be timely and costly. While setting up a pre or postnup agreement costs between HK$10,000 and HK$20,000,a couple may pay millions of dollars in legal battles if no agreement was reached before the separation.
One of the longest running divorce cases in Hong Kong, that of William Allen and his then wife in 1994, took six years to complete. A further 10 years of legal arguments followed. In 2011, in the biggest divorce settlement seen in Hong Kong, Samathur Li Kin-kan was ordered to pay his wifeHK$1.22 billion.
The number of couples signing pre or postnups in Hong Kong has rocketedsince the law was amended in June 2014. People are getting married later in life and are seeking ways to protect their accumulated wealth and inheritance in light of a rising divorce rate. This form of wealth protection may not be big on romance but it’s becoming a must for many.
Some perculiar Prenup clauses