Legal update: Pre-nuptial Agreements FAQs

03Mar2016

With marital planning, wealth acquired by one’s own hard efforts before marriage could be protected from the financial consequences of divorce.

This firm has seen an increased client demand for protection of wealth acquired before marriage including family businesses, interests in family trusts, investment properties, pension and retirement funds as well as structured employment benefits with future distributions.

If there are concerns with asset protection from a marriage, a pre-nuptial agreement before marriage should be considered.  This article discusses why this is the case.prenup

How much do I have to pay my spouse if we divorce?

Under the family laws in Hong Kong, in considering an award of ancillary relief, the Courts would take into account the needs of the parties, compensation for a party’s sacrifices made during the marriage and thereafter if there is a surplus of assets how assets are to be shared between the parties.

The starting point for sharing of assets is generally that total assets should be divided equally between the parties unless there is a good reason for departing from an equal division.  In practice, this means a starting point of 50/50 split of matrimonial assets worldwide.

What financial resources qualify as shared assets?

The current laws do not prescribe a formula of what financial resources qualify as shared assets.  It depends on the circumstances of each case.

Any resource relevant to the marriage could be considered a shared asset.  Generally, salary and any other form of income gained during the marriage as well as assets acquired after the marriage are matrimonial assets and considered shared assets.

Would assets acquired before marriage be included?

Assets acquired before marriage are not immediately excluded from sharing.  Depending on the circumstances, a non-matrimonial asset could be included.  In particular, non-matrimonial assets could qualify in circumstances where the matrimonial assets are not sufficient to cover needs.

Further, duration of marriage and increased co-mingling could turn an asset acquired before marriage into a matrimonial asset capable for sharing.  Examples of such situations are:

(a) income earned during the marriage is applied to pay a mortgage, insurance policy or an investment fund set up before the marriage;

(b) one spouse’s business established before the marriage funds the matrimonial life of the spouses such as groceries and holiday air tickets;

(c) profit gained from an asset acquired before marriage;

(d) employment benefit granted before marriage with a future distribution arrangement;

(e) assets transferred during marriage into one spouse’s company established before marriage;

(f) one spouse receives distributions from a family trust whether the trust is established before or after the marriage.

Can I not declare an asset to protect it from being considered?

In divorce proceedings, the Court has broad powers to investigate the real worth of the spouses.  Both spouses are required to declare their financial status by way of a comprehensive disclosure form known as Form E.

Form E requires disclosure on assets and accounts held by each spouse worldwide in whatever holding arrangement.  This includes holding by joint names or in the name of another via companies and trusts.  Statements of account need to be produced.

Each spouse is required to make oath as to the truthfulness and accurateness of information in Form E.  Any dishonest disclosure or deliberate omissions could amount to contempt of court which is a crime and punishable by grave penalties including sentencing.

To learn more about Form E please click here.

What can I do to protect my assets before entering into marriage?

Get a pre-nuptial agreement and set up a structure to carve out involvement of capital acquired before marriage towards the marriage.

What is a pre-nuptial agreement?

A pre-nuptial agreement is an agreement made between a couple in contemplation of their marriage as to the manner in which their financial affairs should be regulated in the event of their separation in circumstances where it is fair to do so.  The agreed arrangement could be different from what the Court might order had there been no agreement.

There are a number of requirements that a pre-nuptial agreement need to fulfil.  One of them is independent legal representation of both parties.

Are pre-nuptial agreements binding in Hong Kong?

In the case of SA v SPH [2014] 3 HKLRD 497, the Court of Final Appeal upheld the rulings in the leading English authority of Radmacher v Granatino [2011] 1 AC 534 that the Courts should give weight to a pre-nuptial agreement entered into by the free will with a full understanding of its implications unless in the circumstances it would not be fair to hold the parties to their agreement.

Inadequate provision for minor children and leaving one spouse in an unfavourable predicament are examples of unfair circumstances resulting from a pre-nuptial agreement.  Another example is if a pre-nuptial agreement allows one spouse to be free to accumulate wealth during the marriage due to the other spouse’s devotion to look after the family and the agreement allows the breadwinning spouse to retain all that he/she has earned during the marriage.

How much weight would be given to a pre-nuptial agreement?

It is ultimately the Court which determines ancillary relief of a divorce and how much weight to give to a pre-nuptial agreement.

In Radmacher, it suggests full weight would be given to a pre-nuptial agreement provided the requirements are fulfilled and it would not result in an inherently unfair arrangement.

Suffice to say, a pre-nuptial agreement could be persuasive evidence to justify a departure from equality when properly structured.

The key is to structure the arrangements in accordance with the legal requirements of a pre-nuptial agreement and ensure reasonable provision for the financially weaker spouse in the event of separation.

How to start a pre-nuptial agreement discussion with the other spouse?

No one finds it easy to start this dialogue especially in the high spirits of an anticipated marriage.  Gaining understanding and compromise is fundamental.  We offer practical advice on the steps that could be taken to commence an amicable discussion

Joanne Brown

The above is not intended to be relied on as legal advice and specific legal advice should be sought at all times in relation to the above.

If you would like to discuss any of the matters discussed in this brief article, please contact:

Joanne Brown
Partner | Email

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.