Fortune favours the…meticulous and detailed PNA
It is common knowledge that international prenuptial agreements (PNAs) drawn up in Hong Kong can be effective asset protection vehicles and their terms can be enforced by the family courts. But many of the pitfalls and the pressures which have to be dealt with are not so well understood.
Lawyers instructed by the financially stronger party, in particular, need to keep their financial hats on while simultaneously demonstrating finely-tuned diplomatic skills and razor sharp emotional intelligence. Meticulous attention to detail is crucial. You are there to save money by protecting the family from a huge potential hit on divorce, even losing half their wealth. You need to be prepared to ask difficult questions and raise uncomfortable issues.
It’s not just the wording of the PNA that matters. I’m just as concerned about the conversations going on in the background and whether the financially weaker party is genuinely content to sign up. I ask for the email, Facebook and WhatsApp messages between the parties where there is any mention of the PNA or the discussions surrounding it. I want to know exactly what messages are going backwards and forwards.
The detail matters and the risks are of serious concern. HNW and UHNW PNAs shouldn’t be done on the cheap. Failing to spot and deal with a message from a financially weaker party, for instance, indicating that he or she is actually not happy to sign when this contradicts the more positive position being officially communicated through the lawyers is a danger signal - and could cost millions if it is not handled swiftly and effectively.
Sometimes, seemingly innocuous messages such as - “I’m actually only signing because your father wants me to/told me to” - are deliberately planted so that they can be deployed at a later date, long after the excitement of the wedding has died down and the relationship has broken down - consequently making the agreement far more difficult to enforce. Why? Because this is potential evidence of duress. An arguable case of duress can make a PNA worthless. Much of the English case law on the enforceability of PNAs concerns these sorts of issues and also over issues of financial disclosure and legal representation - or rather lack thereof. Indeed, last week it was reported in the London media that the prenuptial agreement signed by Petra Ecclestone and her husband, James Stunt, in 2011 may be challenged on the grounds of duress.
Just browsing? Or here to stay? How to protect your clients from forum shopping
Another important issue that should be covered in a PNA, in order to protect a client, is on the question of jurisdiction; this means where a divorce case will take place in case the marriage comes to an end.
If you are acting for the financially stronger party who is based in Hong Kong, or outside Hong Kong with a substantial connection to Hong Kong, it is worth considering, if the circumstances allow, including an exclusive jurisdiction clause in the PNA. This should be a jurisdiction where the divorce courts are less generous than Hong Kong for the financially weaker party. And you should also warn your client to seek advice the moment there is a problem in the marriage – because it may be necessary to file for divorce in the more beneficial jurisdiction for your client’s circumstances – and to move fast. This is known as “forum shopping”.
But, even if the wealthier party is a Hong Konger based, say, in the United States, that client needs to be warned that the financially weaker party might also be wanting to indulge in some long distance forum shopping, too, and file a divorce petition in Hong Kong whilst still living in the United States. An unexpected request from the other Hong Kong spouse to move temporarily back to Hong Kong from the United States with the children just might be an early clandestine forum shopping move - cloaked in the guise of the spouse needing to spend more time with elderly parents. A mere four months of “integration” of the children at school in Hong Kong could be enough to switch the children’s habitual residence to Hong Kong and strengthening the chances of the divorce proceeding in Hong Kong.
To protect against this scenario, the financially stronger party should, as a precautionary measure - just in case the other party might be allowed to continue to proceed with the divorce in Hong Kong – responsibly ensure that the financial provision in the PNA at least covers the ‘reasonable needs’ of the other party. Don’t forget, if the divorce does proceed in Hong Kong the family court in Hong Kong will make the decision as to whether the PNA is enforced or not - even if the PNA has been prepared and executed outside Hong Kong.
Recent English case law on this question, which is likely to be followed in Hong Kong, brings some potentially good news for the wealthier party: ‘reasonable needs’ does not automatically mean there will be an award of very substantial capital outright in Hong Kong, following the English cases of MacLeod and Radmacher (as endorsed by the Hong Kong Court of Final Appeal case of SPH), where funds are made available for housing for the children on trust during their minorities only. Watch this space.
Hong Kong is still considered the divorce capital of Asia. Its laws place a relatively large amount of power in the hands of the financially-weaker partner in a marriage. It has seen some high-profile and expensive divorce settlements, such as the case of property scion's ex-wife Florence Tsang Chiu-wing, for whom I acted.
PNAs: Why it pays to be practical, measured and responsible
A family lawyer cannot act for both parties. However, it is not obligatory for both partners each to have separate sets of professionals to do their drafting. From the financially stronger party’s perspective, in the event that the financially weaker party takes up this option, which is not uncommon, then the efforts to ensure that that person has had the opportunity to obtain independent advice and unilaterally chosen not to obtain it should be carefully recorded in a waiver clause in the PNA.
Managing clients’ expectations can often be a challenge. What happens if the other party says “no”, refuses to sign and there is a break-up of the relationship?
Sufficient time needs to be devoted to each and every case in order to be able to do so. You might be in difficulties if you haven’t warned the client about all the potential ramifications before he/she pops the PNA proposal. Failing to prepare for and manage the human aspects of the job could lead to significant embarrassment and even negligence actions. In a HNW or UHNW case international experience and in-depth expertise is also vital.
When hundreds of millions of (US) dollars are at stake, you need to be able to handle yourself and your client if you have to advise, for asset protection reasons, that he or she should not proceed with the marriage if their partner will not sign a PNA.
Signing a carefully crafted PNA is the responsible thing to do.