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Legality of Nuptial Agreements in Hong Kong
1 July 2015

Nuptial agreements are agreements made before (ie. pre-nuptial agreements) or during marriage (ie. post-nuptial or separation agreements) which often include provisions for division of assets and spousal support in the event of divorce.

Prior to walking down the aisle, a couple may enter into a pre-nuptial agreement to regulate how their finances should be handled in the event of separation. This is often the case where at least one party has acquired or will acquire significant wealth and the practice is particularly popular in the US. Alternatively, couples contemplating divorce may also wish to enter into separation agreements to achieve the same purpose. Although nuptial agreements aim to provide financial certainty for the parties involved, they were not legally enforceable for public policy reasons under Hong Kong law until the Hong Kong Court of Final Appeal’s (“CFA”) decision in SPH v SA on 9 June 2014.

The Law Prior to SPH v SA

Nuptial agreements were previously unenforceable in England and Hong Kong because they were considered to be contrary to public policy – by encouraging divorce (thereby undermining marriage as an institution) and preventing a spouse from applying for maintenance or ancillary relief. Both in England and in Hong Kong, the courts had pronounced their role in protecting the financially weaker spouse and ensuring that the financially weaker spouse was not left to rely on social welfare.

Facts of SPH v SA

The husband (H) and wife (W) in SPH v SA were both of German nationality, H aged 50 and W aged 45 at the time of judgment. They met in Hong Kong in 2005 and, after entering into a pre-nuptial agreement in 2007, married at the Peninsula Hotel in 2008. They lived in Hong Kong with frequent travels to Germany amongst other places. However, their marriage had broken down by 2010 and they entered into a separation agreement. W subsequently presented a divorce petition in Hong Kong while H petitioned for divorce in the German courts.

The pertinent points of their pre-nuptial agreement were :-

  • – German law would govern the proprietary effects of the marriage;
  • – The German matrimonial property regime would apply with modifications. For present purposes we will not go into this regime’s details and its legal implications on this case outcome.

The pertinent points of the separation agreement were :-

  • H and W agreed to rescind the pre-nuptial agreement and waive all claims for support or maintenance;
  • In the event of divorce, only one party will be represented by counsel whose fees will be borne by H;
  • Each party would retain the assets already in their sole possession;
  • W would be allowed to stay in the matrimonial home for 1 year; and
  • H would pay for W’s health insurance, an allowance to W’s parents on certain conditions and for the accommodation of a horse to be given to W.

CFA’s Holding

SPH was mainly concerned with whether Hong Kong was the proper forum to handle the divorce and whether H’s application to stay the Hong Kong proceedings could be sustained. To answer these questions, the court first had to determine the effect of the pre-nuptial and separation agreements. In short, the CFA unanimously held that the principles enunciated by the UK Supreme Court in Radmacher v Granatino (2011) regarding pre-nuptial and separation agreements should be regarded as the law in Hong Kong. The old rule, that agreements providing for future separation are contrary to public policy, was held to be obsolete.

It is important to note that, even after SPH v SA, nuptial agreements are not automatically binding. The court still retains its jurisdiction under the Matrimonial Proceedings and Property Ordinance (Cap 192) to determine the appropriate ancillary relief in a divorce and no agreement by the parties can oust its jurisdiction. However, following SPH v SA, the courts are expected to give effect to such agreements subject to the following guidelines :-

(1) The court should give effect to an agreement where it would be fair to do so. Where appropriate, the court should uphold an agreement even where it leads to a result that departs from the court¡¦s usual orders;

(2) The court must be satisfied that the parties entered into the agreement on their own free will and free from duress, fraud or misrepresentation. Other unconscionable conduct such as undue pressure or exploitation of dominant position to secure an unfair advantage can also reduce how much weight the court accords to the agreement. Relevant factors to consider may include the emotional states of the parties, their age and maturity and even experience from previous long-term relationships or marriages;

(3) The parties must have fully appreciated the legal implications of the agreement and intended it to govern the financial consequences of divorce. The court can consider if there was any material lack of disclosure, information or advice. Independent legal advice or full (as opposed to material) disclosure are desirable but not necessary in every situation.

Nuptial Agreements and Civil Law Matrimonial Property Regimes

It should be noted that the pre-nuptial agreement in SPH v SA purported to apply Germany’s matrimonial property regime with some modification. The CFA recognized that in European civil law jurisdictions such as Germany, matrimonial property regimes and financial provisions upon divorce are governed differently than in common law jurisdictions. For example, as was done by the parties in SPH v SA and Radmacher v Granatino, parties can modify or even contract out of their standard obligations under civil law matrimonial property regimes or maintenance rules.

In SPH, it was not necessary to determine how the Radmacher position on nuptial agreements would apply to civil law matrimonial property regimes and the CFA purposely left open for future cases the question of whether any qualification or adjustment would be needed.

Preparing Nuptial Agreements

In view of the present position, couples who intend to enter into nuptial agreements should ensure they are both sufficiently informed about the agreement’s effects. Independent legal or even financial advice for each party is often desirable and may increase the likelihood that the agreement will be upheld by the court in the event of separation or divorce. Where elements of foreign law are involved (such as overseas property or the governing law), it will also be important to seek advice on the effect of the such intended nuptial agreements.

Our Litigation and Dispute Resolution team has substantial experience in matrimonial matters including pre-nuptial agreements or contentious divorce settlement. If you have any queries relating to this article or any corporate or commercial litigation matter, please feel free to contact us.

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