Clearing the air about prenuptial agreements

THE idea of a prenuptial agreement between a couple about to tie the knot in Singapore is often met with scepticism.

Prenups are typically dismissed outright, with the insistence that they are not recognised in Singapore courts anyway. So why make one at all? The idea elicits a frown – surely prenups, which envision the prospect of divorce, would dilute the romance in a marriage.

Both objections are misconceptions, as it turns out. With rising affluence, more couples here are entering into prenups, sometimes at the insistence of parents anxious to ringfence family wealth in the event of a contentious divorce. But prenups are no longer confined to the wealthy.

A partner who heads a multifamily office advisory firm said: “Asia is catching up (with the West) in the idea of a prenup… We’re often asked by parents or even the young couple themselves to discuss the option of a prenup. It’s important that this is discussed without emotional stress, so that an informed decision can be made willingly, without hurting the relationship.

“We advocate that ‘financial intimacy’ is established between married couples, so it’s not a taboo subject throughout the relationship, and they don’t feel guilty or feel the need to hide information from each other.”

Recently, partners at law firm Withersworldwide hosted a conference here on family offices for its clients. Partners from four jurisdictions heading the respective family advisory practices – London, California, Singapore and Hong Kong – sat down with me to help shed light on prenups.

At a time when families are increasingly mobile, with homes and assets in major global cities, the risk that assets become embroiled in post-marital disputes cannot be ignored. Prenups – and postnuptial agreements – are among a few instruments including trusts that can play a role in bringing clarity in a divorce.

Ivan Cheong, partner at Withersworldwide’s divorce and family team in Singapore, said it’s a common misconception that prenups are not legally recognised here.

“Prenuptial agreements are valid in Singapore. It’s true that they’re not automatically enforceable, but a prenuptial agreement – as would be the case for a postnuptial agreement – can be given very significant, if not conclusive, weight by the court and by Singapore if certain requirements are met,” he said.

“One thing that’s common across jurisdictions is that both parties are independently advised. There is no duress, no misrepresentation, and there is full financial disclosure such that the parties enter into the agreement with their eyes open. And the terms are fair and reasonable.

“In these circumstances, even if (the prenup is) not automatically enforceable, it’s very difficult for a party to try and get out of the agreement subsequently, unless the parties themselves have departed from the terms of the agreement.”

Rajah & Tann partner in commercial litigation Kee Lay Lian said that while prenups are not automatically upheld, “they are also a starting point for the party seeking to enforce it”.

“Many parties are concerned with the protection of their premarital assets or premarital trust, and they want to exclude these assets (from) the prenup expressly.”

She added: “There is a rise in prenuptial agreements, and the motivation sometimes comes from the parents who have set up trusts or have passed properties or assets to the intended spouse earlier, and want them to remain in the family in the event of a divorce. Generally, they are for asset preservation and protection.”

The courts, she said, are more prepared to consider postnuptial agreements. “Unlike a prenup made years before a marriage breaks down, the postnuptial agreement is usually made in the context of the current circumstances of the parties.”

For a prenup to hold up in legal terms, here are some things to note.

Principle of fairness to both parties

There is a common misconception that a prenup favours the financially-stronger party, to the disadvantage of the less-wealthy spouse. This isn’t so, said Jocelyn Tsao, managing director of Withersworldwide in Hong Kong and partner of the divorce and family team.

“The basic requirement in all jurisdictions is that the terms of the prenup must be fair,” she said.

“Women may be petrified about the prospect of divorce because they have no idea what they’d get. The advantage for women who have prenups is that they know exactly what’s going to happen. They know they’d have financial security, and this gives them the independence to choose to leave a marriage.”

In a divorce, acrimony may arise when it comes to the division of assets and the amount for spousal maintenance. Spousal maintenance is typically linked to the standard of living the spouse enjoyed during the marriage, but even that can be unfair. In contrast, a prenup typically spells out a settlement for either spouse should the marriage break down.

Claire Blakemore, partner in the Withersworldwide divorce and family team in London, said: “When there is no prenup, if you’re the frugal wife and you try to save for the family, that may be to your disadvantage because you’re not spending much, and your needs are assessed accordingly.”

In Singapore, the Women’s Charter, enacted in 1961, seeks to protect vulnerable women and girls. Under the charter, the court can order a man to pay maintenance to his wife upon divorce, separation or annulment of marriage.

In response to calls for more gender neutrality, the charter was amended to make it possible for men to apply for maintenance, but under limited circumstances. A husband must suffer incapacity by mental or physical disability and become unable to earn a living as a result, and unable to support himself.

In any case, there is also a trend in the Singapore courts to limit the duration of maintenance, said Cheong.

“Imagine the case of a woman – this is a real case – who is 38 with two young children. She was awarded just six years of maintenance. What would you do if you were 40 and had not worked for many years?”

Prenups, which are gender-neutral, aim for a clean break through a settlement, usually a financial award of cash or properties, instead of a tail of spousal maintenance.

Said Cheong: “The point is, there is parity of treatment in terms of a fair and reasonable financial settlement where parties put their minds together on what works for them… The universal rule across jurisdictions is that the parties are treated equally.”

Full disclosure and legal advice

Cheong said prenups are drafted in contemplation of a divorce, and this is made clear in the agreement.

Parties are also advised to make full disclosures of their assets at that point in time. Tsao said: “It actually protects you to disclose more rather than less, because then the spouse cannot challenge the prenup later by saying: ‘I didn’t know when I signed the prenup that I was signing away my rights to so many of your assets.’”

It is also prudent to include in the disclosures any existing trusts that parents or the couple may have set up.

To be sure, there is no one-size-fits-all approach. Legal advice is essential to ensure a prenup or postnup holds up in various jurisdictions.

Love and finance

Tsao herself tied the knot not long ago and insisted on a prenup. “Having gone through that, it made me feel closer to him because we’d never had the conversation about each other’s finances, or about what would happen in the event of a divorce.”

She added: “That conversation made us feel we understood each other more. After that, I felt we could talk to each other sensibly and negotiate this very sensitive topic of money and walk out of it not affecting our relationship. I feel I trust him even more than before.”

Samantha Klein, partner and head of Withersworldwide’s California law practice, said it helps to see prenups in the context of an estate plan, likening it to insurance. “If you don’t have an estate plan, you don’t want to be subject to laws that may not fit your needs or wishes. It’s just one more thing you don’t want to have to use, but you have it just in case.”