Advisors are only too aware of what divorce can reap on wealthy families with cross border lives. A family law specialist offers a modern pre-nup guide.

In view of the itinerant lives of the ultra wealthy, protecting against claims when a marriage breaks down is fraught with complication. This guest article highlights issues which advisors should be alert to in nuptial agreements when families are juggling homes and family interests across multiple jurisdictions that may offer very different outcomes for unwinding a marriage. The authors, from law firm Forsters, say pre-nups should reflect these realities to minimise risk. The article is written by partner Rosie Schumm and associate Shabana Saleem in Forsters’ Family Team.

This publication welcomes this contribution to debate and understanding; it does not necessarily agree with all views of those who send in comments, so please feel free to respond. Email the editor at tom.burroughes@wealthbriefing.com

As wealthy modern couples are living increasingly peripatetic lives, it is not surprising that there has been a marked rise in internationally focused nuptial agreements. There are many reasons why couples might enter into such agreements. Perhaps they want to protect business interests or family wealth. They might be marrying later in life after assets have grown over many years. It may well be their second or third marriage and they are keen to protect the financial position for children from the first marriage. Perhaps one party is closer to receiving a prospective inheritance at the time of marriage. There is also the increasingly common scenario of couples relocating to a new jurisdiction, being connected to a number of countries in various ways and feeling anxious about the uncertainty of outcome if they were to divorce.

The reality is that advisors must be alive to the risks of divorce and guard against the potential loss of wealth as a result of marital breakdown. The risks are further compounded by the complex nature of couples’ international lives. They often have multiple homes, intricate global tax structures, family companies, business interests or multiple passports. Nuptial agreements (signed either before or during the marriage) must reflect these realities to minimise the risk of claims on divorce.

International issues are commonplace in negotiations in respect of nuptial agreements and family advisors are often called upon to provide advice on which country to ‘root’ (i.e. base) the agreement. This is against the backdrop of increasing numbers of marriages being conducted abroad, trusts and businesses often having connections to more than one country (sometimes with multiple homes in different countries) and family wealth often being located around the world.

Preliminary advice is regularly required from the relevant jurisdictions to help determine the jurisdiction with the most advantageous outcome for the client. Pre-emptively electing a single jurisdiction without conducting this due diligence can inadvertently leave the wealthier party exposed to the risk and costs of parallel proceedings in opposing jurisdictions.

Clients often retain lawyers to settle nuptial agreements in each relevant jurisdiction in order to guard against every possible claim. However, this can result in competing jurisdictions, as the financially weaker party might try to establish jurisdiction in, for example, England because the nuptial agreement was rooted in this jurisdiction, even if this was not intended to be the place for any divorce. Depending on the circumstances, it can be better for the client to be led by the family law specialist to establish a single nuptial agreement and then set out the wealth protection steps which can be taken in the other jurisdictions.

In the case of Versteegh v Versteegh [2018], the husband could have settled multiple nuptial agreements. Instead, the husband settled the pre-nuptial agreement in Sweden and the English court held, amongst other things, that the wife had full appreciation of the implications of the agreement, which ring-fenced the husband’s business.  

However, one size does not fit all and each country’s approach to the terms of the nuptial agreement is different. For example, France provides for marriage contracts to set out the property regime of the couple, whilst Ireland retains considerable uncertainty regarding the status of nuptial agreements. Meanwhile, England and Wales will consider how much weight to attribute to the nuptial agreement as part of a wider factual matrix on divorce.

Furthermore, nuptial agreements are not automatically enforceable in some jurisdictions. Some countries, such as United Arab Emirates, may refuse to recognise nuptial agreements as they are contrary to public policy. In other countries, agreements may be recognised but not automatically enforceable, such as in England and Wales. Or agreements might be automatically enforceable if they comply with the local law requirements, like Brazil.

What seems like the most advantageous jurisdiction for one party may not be if the jurisdiction in question does not necessarily recognise and/or enforce the nuptial agreement. Also, the country with the harshest settlement terms against the financially weaker party may not necessarily be the best jurisdiction for the particular individual.

The negotiation process for such agreements is entirely different from negotiating a business transaction; if one party negotiates too harshly, that could backfire on them as undue influence could undermine the enforceability of the agreement. It is important to note that nuptial agreements are not automatically binding in England and Wales or in many other countries. Therefore, the approach must be tailor-made to each couple (who will each be independently represented) to ensure that the nuptial agreement is an effective shield against claims on divorce.

The enforceability of any nuptial agreement in a particular jurisdiction should be carefully considered at the outset to make sure that the terms of any principles and the mechanism for effecting any payments can actually be enforced. Otherwise all the effort invested in drafting and negotiating the document could be futile.

Sometimes one party may be tempted to dissipate assets before a divorce to avoid complying with the terms of a nuptial agreement. However, the English courts can act quickly and robustly in such situations by setting aside such transactions, sometimes even joining trustees, business partners or family members to court proceedings. The courts can seize passports, transfer available resources or grant freezing injunctions on worldwide assets. This can cause difficulties in respect of accessing wealth or conducting business in the interim until the overall financial settlement has been reached.

Finances are often a thorny issue for couples at whatever stage in a relationship. Advisors can encourage clients to consider nuptial agreements in terms of improving financial planning, promoting transparency and engendering constructive communication from the outset to provide a strong foundation for the marriage. Nuptial agreements can allow couples, and often their families, to achieve a sense of autonomy, whilst planning for more turbulent times, ultimately to avoid acrimony, cost and protracted fallouts. Hopefully, divorce will not happen for them, but like any good insurance policy, it is better to have protection in place than to risk the uncertainty of outcome.