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An update on the status and enforceability of prenuptial agreements in Hong Kong
25 Sep 2020
This is the third in a series of articles where we examine recent trends in Family Law issues which have a broad impact on the community. The initial article discussed recent developments in divorce law and procedure in England and Wales regarding “no fault” divorce. We then looked at litigation funding and maintenance payments for children of unmarried parents. Here, we examine the enforceability of prenuptial agreements in Hong Kong.
It is now ten years since the leading case in England and Wales (Radmacher v Granatino [2010] UKSC42) changed the way in which courts had historically treated prenuptial agreements. Four years later the courts in Hong Kong adopted the principles set out in Radmacher as law in a case which went to the Court of Final Appeal (SPH v SPA [2014] HKFLR 386). In the absence of any further legislative development, these two cases are still important landmark decisions. Lawyers in our team are often asked whether prenuptial agreements are binding in Hong Kong and unfortunately this is not a question which can produce a simple Yes or No response. The quick answer is that a clearly drafted prenuptial agreement will be considered by a court in Hong Kong in the context of all the surrounding facts of the case; however, the court has ultimate discretion on matters regarding financial provision in divorce and will not simply “rubber stamp” a prenuptial agreement if it believes that doing so would result in an outcome it perceives as unfair or which leaves one party in “a predicament of need”. We will look in more detail below at the current law, and what steps can be taken by a couple considering entering into a prenuptial agreement to ensure the best chance of it being upheld.
A point to note at the outset is that common law jurisdictions such as Hong Kong and UK take a very different approach on this issue to many civil law jurisdictions which have well established marital property regimes and where the community at large often has a significantly deeper acceptance and understanding of a prenuptial agreement. A court in Hong Kong would likely uphold an agreement entered into in a marital property regime jurisdiction where the parties could show that they understood the full implications of the agreement. This is especially so if an agreement is signed in a country where it is commonplace practice and drafted simply and clearly – even if no legal advice is taken at the time by either party. This is clearly seen in the Radmacher decision as set out below.
BACKGROUND
Before Radmacher, prenuptial agreements were generally not enforced on the public policy grounds that they “undermine the concept of marriage as a lifelong union”.
Radmacher involved a wealthy German heiress, Katrin Radmacher, and her French investment banker turned academic researcher husband Nicholas Granatino. They had entered into a German law governed prenuptial agreement which the husband subsequently sought to have set aside. The Supreme Court held that on the facts of the case it was fair to require the parties to adhere to the agreement they had made based on, among other points, the husband’s relative financial sophistication notwithstanding that the husband did not have separate legal advice and the agreement was drafted by a German notary who was accustomed to acting for the Radmacher family. The judgment also provided detail on how the court should consider “fairness” both from the perspective of procedural fairness (eg was the less wealthy party coerced into signing without independent advice in rushed circumstances?) and substantive fairness (eg would the less wealthy party be left in a “predicament of real need” if the agreement were strictly enforced?). Radmacher is so important because for the first time the courts determined that, although a prenuptial agreement is not automatically binding on a husband and wife, it may be upheld if it can be shown that it was “freely entered into” and “with a full appreciation of its implications”.
In recent years, the key cases in England and Wales have generally followed the Radmacher approach whilst providing more guidance and detail on issues such as how a court would treat agreements entered into under marital property regimes (eg Z v Z [2012] 1 FLR 1100, which we touch on below), the relative importance of legal advice given (or not given) at the time the agreement was created, and the degree by, and circumstances which, cause the courts to consider the less wealthy party’s “needs” and ultimately what is fair. Z v Z is an interesting example of a French prenuptial agreement which arose in divorce proceedings in London. After cohabiting for five years, the couple entered into a “separation de biens” marriage contract which on its face excluded the concept of sharing of any property – from before or during the marriage – between the couple. All the formalities of the contract were entered into correctly, the contract was not at all unusual in the context of the families and the wife understood the nature of the contract when she entered into it. The husband sought to rely on the agreement, asserting that a 50:50 split (the likely ratio to be awarded in an English court not taking the prenuptial agreement into account) was inappropriate, and that he argued that his wife’s needs would be well met if she were to take a 35% share of the marital asset pool, which was approximately GBP15,000,000 (HKD150,000,000) and all generated during the marriage by equal contribution. The wife asked for a 50% share based on her equal contribution to the 14 year long marriage and five year prior cohabitation. The Judge determined that, based on the legal principles outlined in Radmacher and the overall facts of the case, it would be fair to depart from equality to reflect the agreement, and awarded the wife 40% of the pool.
Finally, a very recent case in England, S V H [2020] EWFC B16, serves as a cautionary note and a useful reminder of the potholes which can arise. This case involved a couple each entering into their second marriage, and signing a prenuptial agreement prepared by a foreign notary five days prior to the wedding outside the UK. Neither party took independent legal advice, nor did they make any financial disclosure to each other. After the marriage broke down, the wealthier and younger wife sought to rely on the agreement whilst the husband argued that it should not be upheld on the grounds that it would drastically limit the amount of support he would receive. The judge (HHJ Booth), exasperated by each parties’ conduct in the case, concluded “In my judgment there is no value in the prenuptial agreement. There was no formal process of disclosure, there was no advice given to either party, other than by the notary who prepared the document and at five days before the ceremony”. As a result, the judge disregarded the agreement and awarded the husband both an income award and a property on trust (to revert to the wife on his death).
HONG KONG CASE LAW
SPH, the leading case in Hong Kong, involved a divorce between two German nationals who had signed a prenuptial agreement in Germany before marrying in Hong Kong the following year. The couple disputed whether the divorce should take place in Germany or Hong Kong, and the husband applied to the Court of Final Appeal to seek to persuade the court in Hong Kong that Germany was a more appropriate forum, but he was unsuccessful. The Court of Final Appeal used the opportunity to review the applicable law relating to prenuptial agreements and it subsequently adopted Radmacher as good law in Hong Kong.
In the five years since SPH there have been few cases dealing with prenuptial agreements which have been adjudicated by the courts so the law in Hong Kong has not developed very far from Radmacher. One recent case (LCYP v JEK [2019] HKCFI 1588) is however helpful. LCYP concerned a divorce between a US born husband and a Hong Kong born wife who were married in New Jersey, USA, having previously entered into a prenuptial agreement governed by New Jersey law. In the course of the over 20 year marriage, the couple had become very affluent from a somewhat modest starting point. The issue which concerned the court related to ancillary relief (i.e. financial provision for the wife), and in particular the weight which the court should allow for an unvitiated prenuptial agreement. In this context, an “unvitiated agreement” describes an agreement which is clear and straightforward, and not flawed in any way. HH Chan J confirmed that SPH was still the guiding case, and he also quoted extensively from Radmacher to review how the court should consider concepts such as “need”, “fairness”, “autonomy” and “future circumstances”. Based on the legal principles outlined in both Radmacher and SPH on the one hand, and the facts of this particular case on the other, the Judge commented “I do not believe that the law requires the court to quantify the amount of weight to be attached to an unvitiated prenuptial agreement. In this case, it would not be right to attach no weight to [it]. On the other hand, it would be wrong to place great weight on it because it would be unfair to do so”. He further added “The couple were young at the time of entering the [prenuptial agreement]. The circumstances had changed in a way which they did not anticipate. In particular, the financial landscape at the time of breakdown of marriage was vastly different. The advancement of the family’s standard of living had much to do with the sacrifice of the wife. She is now left in a much disadvantaged position having given up the opportunity to develop her career for the sake of the family. It is simply wrong for her to be held to the terms of the [agreement] whilst the husband got to keep the fruit of her sacrifice”. HH Chan J’s decision provided the wife with considerably greater financial provision than the prenuptial agreement contemplated.
KEY PRACTICAL POINTS
As set out above and in Radmacher, the requirements for enforcement of an agreement prepared in a marital property regime jurisdiction are significantly different for an agreement prepared in common law regimes such as UK, USA and Hong Kong. What are the key takeaways from the case law which would demonstrate to a Hong Kong court that a prenuptial agreement entered into in UK, USA or Hong Kong is both procedurally and substantively fair, and hence more likely to be upheld?
- The enforcing party must show that any agreement has been entered into freely with both parties fully understanding what they were each signing
- The agreement should be entered into at least 28 days before the wedding, and there can be no evidence of duress or undue influence
- Both parties should make full disclosure to one another of all material financial information
- Both parties should seek independent legal advice (note that this is not a “must” in situations where it may not be customary to do so, e.g. certain civil law jurisdictions where an agreement may be prepared by a notary acting for both parties)
- The agreement should be fair, meaning that it does not leave the less wealthy party in a “predicament of real need”
- Both parties should be clear that they intend the agreement to be binding irrespective of where they may divorce (i.e. it could happen in a jurisdiction governed by a law very different to the governing law of the agreement) and when they may divorce (i.e. do the provisions have equal effect on a 5 year and a 50 year marriage or is there a “sunset” clause providing for the agreement to terminate at a certain date)
- There can be no upward limits on the amount of financial provision for the children – this matter remains firmly in the court’s jurisdiction
OUR EXPERIENCE
We regularly advise international and Hong Kong based clients on issues arising from prenuptial agreements. Stephen Peaker, the Head of the Family Law Department, acted for the wife in SPH, the leading case in Hong Kong, at the Court of First Instance ([2012] HKFLR @52-69), and is currently acting on a case representing a client seeking to set aside a financial consent order for failure to disclose a new relationship which induced him not to rely on a prenuptial agreement from a marital property regime jurisdiction (GM-SA v DMP-J [2017] HKFLR @ 513-). This case is markedly different from LCYP (which featured an agreement prepared in New Jersey, USA and which would therefore need to satisfy the items flagged above in Key Practical Points), and is rather the same type of agreement, and follows the same legal principles, as Radmacher.
CONCLUSION
This is a subject which needs to be approached with care. There is clear case law precedent available to guide the courts on legal principles but facts nevertheless play an important role. If the supporting fact pattern is generally in line with the points outlined in Radmacher on the issue of the application of the prenuptial agreement in a marital property regime jurisdiction or in “Key Practical Points’ above, as the case may be, then the court will in all likelihood uphold an unvitiated prenuptial agreement.
September 2020
Stephen Peaker, Partner and Head of Family Law
Michael Openshaw, Consultant
Family Law Department
Oldham, Li & Nie
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.
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