Nuptial agreements have often been met with conflicting views. For the romantics, the idea of entering into a nuptial agreement may suggest planning for an imminent divorce. For the cautious and financially prudent, it can be seen to be a sensible financial and succession planning tool.

The leading judgment on the application and validity of nuptial agreements from the UK Supreme Court Radmacher v Granatino [2010] 3 WLR 1367 was published ten years ago today on 20 October 2010 and we take this opportunity to revisit Nuptial Agreements and its application in Hong Kong.

What is a Nuptial Agreement?

A nuptial agreement is also known as a marital agreement. Split into two categories; a pre-nuptial agreement is an agreement entered into by a couple in contemplation of their marriage; while a post-nuptial agreement (sometimes known as a mid-nuptial agreement) is an agreement entered into by a couple following their lawful marriage.

Generally, the nuptial agreements will govern how the couple will regulate their financial affairs in the event of separation. There is no requirement in law for a couple to enter into a nuptial agreement, whether pre- or post-nuptial.

The Law on Nuptial Agreements

It may be the 10 year anniversary of the seminal Radmacher decision, yet nuptial agreements remain a developing area of law in both England and in Hong Kong. Firstly, nuptial agreements have no legislative foundation and are instead a concept borne of the common law. Secondly, they are not automatically enforceable in Hong Kong, nor are they binding in the usual contractual sense.

When considering a nuptial agreements, the Court will not simply apply the rules of contract law. In the event of a divorce, the Court will consider the circumstances surrounding the making of the nuptial agreement to determine how much weight should be given to it. Important to note is that a Court’s jurisdiction can never been definitively ousted.

In the past decade, we have seen the position shift in the following manner:-

1. Pre-Radmacher

In the past, it was contrary to public policy for a couple who were married or intended to be married to make an agreement which provided a contingency plan for separation. It was thought that this would encourage separation and divorce and the Court generally paid no regard to them.

As recently as 2008, in MacLeod v McLeod [2010] 1 AC 298, the Privy Council in England (on appeal from the Isle of Man) held that it was not open to them to reverse the long-standing rule that pre-nuptial agreements were contrary to public policy and not binding in the ordinary contractual sense. It held that it would be more appropriate that any such policy change should be made by legislation rather than by judicial development.

2. The Radmacher decision

Radmacher was a case in which the French Husband and German Wife were wed in 1998, having signed a pre-nuptial agreement 3 months before the marriage. The pre-nuptial agreement provided that neither party would acquire the other’s property during the marriage or upon its termination. The pre-nuptial agreement was instigated by the German Wife who was the heir to a large family fortune.

The couple separated in October 2006 after having two children together and the French Husband applied for financial relief. The case first appeared before a Judge also in 2008 and the Judge gave little weight to the prenuptial agreement as she considered that amongst other things (i) the French Husband did not have legal advice when he agreed to the prenuptial agreement, (ii) there had been no financial disclosure from the Wife prior to the signing of the agreement, (iii) there were no negotiations on the pre-nuptial agreement and (iv) the couple have since had children. Accordingly, the Judge awarded the French Husband over 5 million pounds, a house in London and Germany and periodical payments for each child. The financial award would have been funded by the German Wife’s inheritance and she appealed the decision.

The Court of Appeal held that the pre-nuptial agreement should have been given decisive weight. While the Court of Appeals still provided the French Husband with some housing and other payments to provide for the children’s maintenance on the basis of him acting in the role of a father, post-divorce, rather than as a former husband. The French Husband appealed the decision.

The majority of the Supreme Court dismissed the Husband’s appeal. It held that parties to a nuptial agreement will be held to their bargain in the event of a divorce provided that the agreement was “freely entered into by each party with a full appreciation of its implications, unless in the circumstances prevailing it would not be fair to hold the parties to their agreement”. What is important is that there is procedural fairness and substantive fairness.

In summary, the key points arising from Radmacher:-

  • A three-stage test is applied to consider whether a nuptial agreement is fair:
  • The agreement was freely entered into. The agreement is unlikely to be upheld where there was any evidence of fraud, duress, misrepresentation or any unconscionable conduct. Another factor to take into account is a party’s emotional state prior to signing the agreement.
  • The parties must have full appreciation of the implications of the agreement. Financial disclosure is important. Independent legal advice sought by both parties is also helpful.
  • It must be fair to hold the parties to their agreement in the circumstances. This is a factual consideration as at the time of the divorce. For this reason, the Court’s jurisdiction is not ousted by any existence of a nuptial agreement.
  • The court should apply the same principles when considering pre-nuptial agreements as it applies to post-nuptial agreements.

3. Post-Radmacher

In the 10 years since Radmacher, we have seen a general rise in nuptial agreements. While there remains no judicial change yet on the enforceability of nuptial agreements generally, in 2014 the Law Commission in England published a report with recommendations on nuptial agreements. It recommended the introduction of “qualifying nuptial agreements”, which would be a binding arrangement on financial provisions upon a divorce. If put into application, a “qualifying nuptial agreement” would oust the Court’s jurisdiction provided it meets certain conditions and safeguards.

There have also been several cases before the Courts in England and Wales and in Hong Kong, although none have been of the same significance as Radmacher. The key case in Hong Kong is of SPH v SA [2014] HKEC 957 where the Court adopts and applies Radmacher.

We have now seen many cases where the Courts have shown a willingness to give weight to the decisions of the parties who have entered into a substantially and procedurally fair nuptial agreement.

One notable Hong Kong case since Radmacher and SPH v SA is LCYP v JEK [2019] HKCFI 1588 which highlights the importance of stage three, whether it is fair to hold the parties to their agreement, of the three stage test set out in Radmacher.

In this case, the Applicant Wife sought an order from the Court that no weight should be given to the prenuptial agreement in light of the circumstances surrounding the case. The Wife did not challenge the validity of the prenuptial agreement which was described to be “unvitiated”, i.e. it was a clear and straight forward agreement.

On facts, the couple were young when they entered into the pre-nuptial agreement. 20 years into the marriage, circumstances changed and the financial landscape was considered to be vastly different than at the time the pre-nuptial agreement was entered. Specifically due consideration was given to the fact that the Wife had sacrificed developing her career for the sake of the family. The Court held that it would be “simply wrong for [the Wife] to be held to the terms of the [pre-nuptial agreement] whilst the husband got to keep the fruit of her sacrifice”. Consequently, the Judge provided the wife with greater financial provision than agreed in the pre-nuptial agreement.

Conclusion

The growing movement towards entering nuptial agreements, which allow parties to take a greater role in determining the financial arrangements in the event of a divorce, is welcomed by family practitioners. The clarifications and developments from the Courts, both in England and Wales and in Hong Kong, have also provided much assistance to this every developing area of law. Maybe in another ten years we will be able to advise on nuptial agreements with more certainty. But until then, it is important that parties seeking to enter into an agreement continue to approach them cautiously.