Legal effect of Nuptial Agreement
Recent years have seen a growing concern in couples looking to ring-fence their respective assets in a marriage. Many couples have decided to enter into a nuptial agreement before or after marriage (collectively referred to as the “nuptial agreements”) which sets out the terms for distribution of matrimonial assets and their respective financial responsibilities in the unfortunate event of divorce. This article briefly discusses the legal effect of nuptial agreements in Hong Kong and the general approach adopted by the court in handling nuptial agreements in family cases.
1. Contents of Nuptial Agreements
Nuptial Agreements primarily deals with ring-fencing pre- and post-marital assets of the parties held in their respective names, specifies how the assets acquired by the parties during the marriage are to be treated, and the manner of distribution their matrimonial assets in the event of divorce. It should however be noted that nuptial agreements generally do not cover terms relating to the custody of the children. This is because when the court decides on the arrangement of the children of the family in a divorce, it will always act in the best interests of the children rather than solely following the wishes of the parents. Moreover, since nuptial agreements are usually signed at a time much earlier than the actual date of the divorce, it is difficult for the parties to predict the actual living conditions of the children of the family at the time when the parties entered into the agreement.
2. The differences between a Post-nuptial Agreement and a Deed of Separation
Some couples will choose to enter into a Deed of Separation either when they are considering separation or after they have separated. The main difference between a Deed of Separation and a post-nuptial agreement is that Deeds of Separation are signed in contemplation of an imminent divorce, which specifies the allocation of family assets and maintenance arrangements based on the financial conditions of the parties at the time of execution. However, a post-nuptial agreement is executed at the time when the parties are still in a harmonious relationship, which tends to deal with the principles in nature. Terms of the two documents therefore differ quite significantly.
3. The legal status of nuptial agreements in Hong Kong
There is at present no statue law governing nuptial agreements in Hong Kong, and the court refers to case authorities when considering nuptial agreements. In fact, the court in Hong Kong has the ultimate discretion whether to uphold a nuptial agreement. If the court considers that a nuptial agreement is manifestly unfair to one party, it has the power to deviate from the agreement and make an order as it deems fit in the circumstances in order to achieve overall justice. Relevantly, as held in the Hong Kong case LCYP v JEK [2019] HKCFI 1588, a nuptial agreement will not be regarded as unfair so long as the financial provision made in the nuptial agreement meets a party’s reasonable needs, which does not necessarily need to be a generous one.
On the other hand, the parties having received fair treatment during the process of the execution of a nuptial agreement is another crucial factor for the court to consider whether a nuptial agreement should be upheld. According to the Hong Kong case SPH v SA [2014] HKEC 957, the court generally consider whether the parties fully appreciated the legal effects of the agreement, signed the agreement on their free will, sought independent legal advice, and were given full and frank financial disclosure before the execution.
It is commonly conceived that entering into a nuptial agreement is contrary to the spirit of marriage. However, a nuptial agreement facilitates a clearer understanding of the couple’s financial arrangements and allows for a more transparent handling of the couple’s assets after the marriage. This can reduce unnecessary misunderstandings and is conducive to a long-lasting relationship.
