Pre-nup agreements: a valuable tool for wealth preservation

IN a relatively conservative society like Singapore's, pre-nuptial agreements (PNAs) have in the past been viewed with some suspicion. It was seen as inauspicious to envisage and discuss potential divorce before parties had even married.

However, as the stigma associated with divorce lessened over the years - and arrangements have to be discussed anyway when the marriage breaks down - people now see the benefits that PNAs bring. PNAs can list the parties' premarital assets (which are generally not subject to division during a divorce). They can set out the parties' intentions which can be relevant - for instance, if the parties intend to relocate (whether to or from Singapore) after marrying.

What is most important, however, is that PNAs give the couple certainty and peace of mind. When done right, PNAs afford spouses-to-be the assurance that an arrangement agreed upon pre-marriage will be maintained post-marriage.

Validity of a PNA

In order for a PNA to be effective, it has to be valid and enforceable in court. While most couples do abide by their PNAs, there are rare cases in which one party departs from the agreement in the PNA. The party wanting to abide by the PNA will need to ask the court to enforce the PNA.

Whether any particular PNA is valid and enforceable in court depends on a plethora of factors. There 2 primary categories of such factors.

The first category pertains to the circumstances surrounding the making of the PNA. The second category pertains to the specific terms in the PNA itself.

Without going into great depth, PNAs should be fair to both parties, both in substance and in the process of negotiation. Drafting the PNA cannot be contrary to public policy (that is, containing terms that are unlawful or illegal), and must be specified to be in contemplation of a divorce. The usual contractual requirements when entering into an agreement also apply.

The court looks at all the circumstances of a case when determining whether a PNA is enforceable, including factors that are outside the parties' control (for example, whether circumstances have substantially changed). As a guide, the PNA should be negotiated and drafted with full transparency and fairness between the couple with the benefit of independent legal advice.

Acting consistently with the PNA

Once a PNA has been entered into, that is not the end of the matter. A PNA governs the substantive rights of the couple, but it is only a piece of paper unless the couple behaves consistently with their agreement in the PNA.

In a recent decision by the High Court (Family Division) in 2021, a couple entered into a PNA that excluded certain assets from division in a divorce. Among these assets was an Australian landed property that the husband wanted to exclude from the pool of matrimonial assets. During the marriage, the husband sent the wife at least 2 e-mails in which he included the Australian property in lists of "our net wealth". This was among other communications which suggested that the couple "managed their financial affairs in a way that did not seem fully consistent" with their PNA. In these circumstances, the court decided that it would not be fair to give full weight to the PNA.

Thus, a prolonged course of conduct that is inconsistent with a PNA might prejudice its enforceability. A couple who has entered into a PNA should thus be mindful of the terms of the PNA, and should avoid:

• Preparing lists of family net worth that include assets that are explicitly excluded in the PNA from division,
• Agreeing informally, during the marriage, to an arrangement that materially departs from the PNA,
• Sending e-mails or text messages in which either of the above is referenced.

This is, again, non-exhaustive; any conduct that is inconsistent with a PNA can be taken into consideration.

Wealth preservation tool

PNAs also serve as an effective means through which family wealth can be protected for future generations.

In families where trust funds have been set up, family members intending to marry are usually required by the family to enter into a PNA. Such an agreement would serve to protect the family trust, by:

• Specifically excluding trust assets from division,
• Preventing the spouse, who would otherwise be an 'outsider' to the family, from being regarded as having made any contribution to the trust assets,
• Specifying that the parties agree that the trust is intended to provide for the family.

Such PNAs protect the trust assets by preventing the inadvertent division of trust assets upon divorce, keeping the assets available to the trust to thus provide for future generations.

PNAs can also preserve the spouses' own assets for their future children. Spouses that are well-to-do can desire that a portion of their own assets be set aside for the benefit of their children, especially if the spouses intend to provide for an overseas education for their children.

In such a situation, a PNA can specify that the spouses each agree to set aside a sum of money or an income-generating asset on trust for their future children's education. The money or asset that is set aside is generally excluded from division in a divorce and is preserved for the benefit of the children, instead of the spouses themselves. PNAs can thus protect wealth for future generations, generally regardless of the spouse's circumstances.

PNAs are becoming increasingly prevalent in Singapore, especially among parties who appreciate the security and certainty that such an agreement provides. While not automatically enforceable as of right, PNAs are valid and, in the event of a dispute, would under the right circumstances be fully enforceable under Singapore law. PNAs are thus a highly valuable, if underutilised, tool to regulate the couple's interests in marriage and in divorce.

A properly drafted PNA can provide very substantial protection for assets that are pre-marital or that belong to the extended family, and can provide peace of mind to the couple and to their extended family. Parties can and often do agree on how they wish to divide jointly and separately owned assets in the unfortunate event of a divorce.

Such PNAs prevent disputes from taking place during the marriage (especially over money) and, contrary to the popular stereotype, promote stability within the family in doing so.

• Ivan Cheong, partner, Withers KhattarWong, is a family law specialist is listed in the Doyle's Guide for Leading Family & Divorce lawyers in Singapore since 2017. Shaun Ho is also a specialist family lawyer in the same firm.