Given That 50 Per Cent Of Marriages End In Divorce, Isn’t It Time Everyone Secured A Pre-Nuptial Agreement Before Tying The Knot?
Pre-nup tips and traps for high net-worth, internationally mobile couples to watch out for before they walk down the aisle…
According to the American Psychological Association, approximately 40-50 per cent of first marriages and approximately 60-67 per cent of second marriages end in divorce. If those rates are for domestic divorces, how much higher will the rates be in expat circles?
If you were told that there was a 50 per cent chance of your house burning down next year, you would most likely, before buying the house, put in place some house insurance. As personal admin goes, it might be boring, time-consuming and a bit expensive, but you would probably do it.
In the same way, if you are one half of an international couple with a degree of wealth either in your own name right now, or you are set to receive wealth in the future (by way of family gifting, inheritance or employment-related pay-out), then you should seriously consider entering into an international pre-nup – an agreement (or a series of agreements) intended to be binding across the world. Here are some things to think about before embarking on your pre-nup…
Think about where you are both from and where do you have your roots?
This is the usual answer to the very lawyerly question “What is your domicile of origin?” If for example, your mum and dad are both from Perthshire, you already have your burial plot identified in the Highlands, and you leave a scent of heather wherever you go, then chances are you have a Scottish domicile. Why does this matter? Well, in this case (and in many countries across the world), your domicile or nationality is one of the factors that, if your marriage were to hit the rocks, would entitle you to get divorced in that jurisdiction. And again, in that case, you would be wise to enter into a Scottish pre-nup because Scotland is one of the jurisdictions that consistently respects and upholds pre-nups.
Where do you currently live and where are you likely to live during your marriage?
This is perhaps the most important question. Whole books have been written on the subject of what “residence” means in different jurisdictions across the world for divorce purposes, but for most ordinary people it is the answer to the question, “Where do you live?” A person’s residence is probably the most common jurisdictional criterion across the world for divorce – combined in many cases with other factors such as domicile, place of work (Abu Dhabi) or even place of the cause of the breakdown of the marriage (in New York!). If you and/or your spouse live in London at the time of the breakdown of the marriage, you can file for divorce there. Ditto Paris, Hong Kong or Athens. You should therefore, to the extent possible, make sure that your pre-nup is going to be binding in the place you both live now (in case you never move throughout your whole lives), but also in the other countries to which you have close ties and could imagine yourselves moving to.
Will you buy or own real property during your marriage? If so, where?
This is closely connected to the question above, because owning a home in a certain place can often enable you to apply for divorce there, or it can drag you unwillingly into the courts of that jurisdiction as a respondent/defendant.
However, the other point when it comes to owning real property is how it is treated on divorce in certain jurisdictions and what you can do about that by careful use of pre-nups.
If you have or intend to have property in England, for example, you need to be aware of a few tendencies by its matrimonial finance judges, which may be both unexpected and unwelcome to the ‘foreign’ resident who finds himself in a divorce court.
The first surprise for many is that, regardless of who paid for the matrimonial home or which spouse’s name the home is in, the default order on divorce is that it will be split 50/50. This is particularly surprising for those from countries with matrimonial regimes where if the home is in their eyes “separate property” (because for example, it was bought and owned by the husband 10 years before he even met the wife), it would be retained by the husband. Not so in England without a pre-nup.
The second awkward topic is our equitable remedies. To be honest, most English lawyers don’t know what proprietary estoppel or a constructive trust is but what they do know is that if you have a dispute about the ownership shares of a property, according to equitable principles, the outcome of the dispute will often be totally unpredictable and you will spend a lot of money on legal fees getting to that outcome.
The answer of course is a pre-nup, in which you can specify very carefully the ownership shares of properties before, during and, if applicable, after the marriage. Dovetail your pre-nup with your and your fiancé(e)’s Wills, and you can also provide for the devolution of such properties upon death. This can be absolutely essential where there are family properties or artwork which have been passed down through the generations over hundreds of years.
Where are you going to get married?
This can link you as a couple to a particular jurisdiction. For example, if you were to get married in the State of New York, and one of you maintains a residency there throughout the marriage, then that combination of factors could entitle you to obtain a divorce in New York should your marriage fall apart. This may be exactly what you would wish (as New York courts tend to uphold pre-nups more readily than, say, English Courts) but it really may not! Think carefully about where you get married, and don’t just choose your venue based on the backdrop for your wedding photos!
Will your marriage be regarded as valid if you move to another jurisdiction that you have a connection with?
If you are non- Muslim and you are marrying someone who is legally a Muslim in Malaysia, your marriage will not be regarded as valid under Malaysian law unless you convert. And there are many other examples.
It stands to reason therefore that if your marriage does not exist in certain jurisdictions, there can be no dissolution of the marriage in those jurisdictions. And also, any financial orders made on divorce in the country that does recognise your marriage and will dissolve it (say England), are unlikely to be enforceable in the country that doesn’t recognise your marriage. This might cause problems for the financially weaker spouse and it would be wise to consider measures in the pre-nup that will reassure the financially weaker party to the marriage.
How generous does the pre-nup need to be to the weaker party?
If you have or are likely to have a connection to England or Wales, remember that both the process leading up to the signing of the agreement and the actual terms of the agreement are incredibly important. The formalities are of lesser significance.
An English court will only uphold the terms of an agreement that, at the time of implementation, meet both parties needs (that is usually income and a suitable home in which to live). Usually, that will mean the wealthy party (or their family) making reasonably generous provision in the pre-nup – especially if the couple plans to have or adopt children.
By contrast, if you have a connection to California, and there is a likelihood of your pre-nup being considered by a Californian court, you will find that the terms of your agreement can be, from the poorer party’s perspective, both mean and unfair and it will still be upheld.
But if the correct formalities are not adhered to (something that, if you are in the know, is so easy to achieve), then your agreement, however carefully crafted, will be completely null and void.
All that said, don’t be mean. If you are the richer party and you really are marrying for love as you say you are, be generous to your other half. Be especially generous if you hope to be blessed with children. In England, you can’t contract out of your obligations towards your future children. The courts will make you provide generously for your children anyway on divorce, so why not say you will do so up front in the pre-nup?
What about the process of negotiating the terms of the agreement?
The process to be followed varies across the world. In Germany, for example, in order to contract into a particular matrimonial regime, it is not necessary for parties to give and receive financial disclosure, nor is it necessary for parties to receive independent legal advice (one lawyer or notary can and often does advise both parties).
In England, however, it is not so simple. We have the most famous 2008 case of Radmacher and Granatino, where the husband contracted into a strict separation of property regime in Germany with no independent legal advice and almost no disclosure, but because he was deemed to have fully understood what he signed up to, he was held firmly the terms of it. But then there was the later case of XW v XH in 2017, where the parties entered into a very similar separation of property regime in Italy, but where the wife on divorce was not held to the terms of the agreement, because she was deemed not to have properly understood what she was signing.
The answer: make sure each of you instruct your own independent specialist international family lawyer, make sure each of you receives full financial disclosure from the other, and make sure that you both have the time, lack of pressure and freedom to ask questions, pause, amend the terms as appropriate and reflect on it all so that when you sign, you are doing so with your eyes open and fully informed.
For more information visit expatriatelaw.com