Prenuptial agreements – the importance of being consistent

Article 06 September 2021 Experience

Prenuptial agreements – the importance of being consistent

Prenuptial agreements are increasingly becoming more prevalent and commonly accepted by parties looking to set out how they intend to agree on financial settlement terms in the event of a divorce. Approaching the topic of preparing and executing a Prenuptial Agreement is always a sensitive topic that should be broached frankly and as an honest conversation between the parties. Done rightly, it sets the tone and foundation for a respectful and trusting relationship between the parties to a marriage and may be viewed as a prudent insurance of sorts.

Local case authorities on Pre-Nuptial Agreements (“PNA”) tend to be few and far between given that only such PNAs which are subsequently challenged in Court require adjudication. Hence when the Court publishes a robust and well-reasoned decision on PNAs, it deserves a closer look.

The recent case of CLB v CLC, [2021] SGHCF 17, a decision by Justice Debbie Ong of the Family Division of the High Court, is replete with helpful guidance on the division of assets, transformation of non-matrimonial assets to matrimonial assets, and on other topics and deserves close attention by practitioners. In this article, we focus on the aspect of the decision that pertains to PNA and how it is important for parties to behave consistently with what was agreed in the PNA.

Background Facts

The couple in CLB v CLC was married on 15 September 2003. The Interim Judgment was granted on 26 July 2019, making this a marriage of between 15 and 16 years. The parties had two children born in 2005 and 2007, and the parties were both aged 53 as at the time of the decision. The wife worked as a compliance officer in a bank earning about S$25,000 a month, and the Husband was a personal investor who earned about S$23,000 a month from his investments.

The parties entered into a PNA 5 days prior to their marriage, i.e., on 10 September 2003. The PNA specified that its purpose was to “protect their separate property … from claims by each other if they separate”. Such ‘separate property’ included (a) the assets owned by the parties as at the date of the PNA, (b) property later acquired by gift and inheritance, and © income and other gains derived from the parties’ separate property whether by sale, investment, or other dealing. The PNA had a Schedule which listed the husband’s separate property. The judgment does not state whether there was a Schedule that similarly listed the wife’s separate property (it is a common practice when drafting / executing PNAs for both parties’ separate property to be listed), but the decision does not turn on this.

Issue concerning enforceability of the PNA

The husband sought to enforce the PNA and exclude his separate property from division, whereas the wife argued that the parties’ subsequent conduct showed that they had abandoned the PNA. The wife highlighted that the parties did not keep their finances separate and ‘pooled their resources together’, and brought to the Court’s attention two emails dated 27 September 2018 and 12 February 2007 in which the husband listed the parties’ assets and referred to this as “our net wealth” or “total wealth”.

The question for the Court to determine was whether, in light of such conduct, the Court should give full weight to the PNA and enforce it in its entirety.

Court’s Decision

On the law, Ong J cited TQ v TR [2009] 2 SLR 961, the seminal Court of Appeal decision on marital agreements, for the principle that PNAs are not enforceable in and of themselves. The Court could nevertheless have regard to PNAs, and the question in each case is the weight that should be accorded to the PNA.

Ong J noted that the parties’ communications and conduct were not entirely consistent with the PNA and that they appeared to have shared a similar understanding in this regard. Bearing this in mind, the Judge was of the view that it would not have been just and equitable to give full weight to the PNA and enforce it in its entirety although the Judge gave some weight to the agreement.1 The Judge also bore in mind the fact that the PNA was signed long ago – i.e., 16 years ago – and noted that the husband’s repeated reference to the parties’ assets as a shared source of wealth had an impact on how the wife conducted her own affairs. Such communications showed that the husband intended for some – but not all – of his premarital assets to be used for the good of the family.

As a result, the Judge assessed each asset individually in determining whether it ought to be included in the pool of assets for division. In doing so, the Judge considered the factual matrix surrounding each asset.

The Judge had to determine 7 categories of assets, some of which overlapped with each other. Out of these 7 categories, the Judge excluded 5 and included as matrimonial assets 2. The Court included monies in one of the Husband’s bank accounts as part of the pool of matrimonial assets notwithstanding that the husband stated that the balance in this account of about S$450,000, derived from the sale of his share in a property known as Property 3, was deposited. Property 3 was listed in the PNA as one of the Husband’s separate property.

The Judge included the funds in this account into the pool of assets for division. She noted that it was undisputed that the money in the account was used to fund the family’s expenses, and that the husband did show an intention to use these funds for the family’s benefit. The wife did also transferred large amounts of money into the account, and thus the funds deriving from the husband’s separate property was commingled with matrimonial funds.

Conclusion

Parties must behave consistently with their PNA. One of the reasons for Ong J’s approach, i.e., of going through each category of assets bearing in mind the precise factual matrix surrounding each such asset, was that the Husband repeatedly referred to his separate property as part of the parties’ ‘total wealth’ or as ‘our net wealth’. Objectively, this suggested that the husband did not treat his separate property as indeed his separate property, and led the wife to the reasonable conclusion that the husband had abandoned the PNA. Although it was not explored in CLB v CLC, it could have been argued that promissory estoppel may apply to hold the husband to his promise that these assets were the parties “total wealth”.

Where parties have behaved consistently with their PNA, the Court is very likely to give conclusive weight to the PNA. For instance, in a case where the court has to determine whether an asset lost its character as a gift when it was transformed, strict adherence to the PNA would likely lead to the Court finding that there was no intention to convert the gifted asset into a matrimonial asset. At the end of the day, the PNA is not enforceable in and of itself but substantial weight can be given to the PNA in applying the relevant tests under the Women’s Charter.

The PNA served as a very strong evidential tool in this case. Notwithstanding the fact that the marriage lasted 16 years, there was no dispute between the parties as to whether any particular asset was a premarital asset or not. The dispute between the parties arose as a result of their conduct post-marriage, and how such conduct evinced the parties’ intentions as to their premarital assets. In most cases with long marriages in which the parties do not have a PNA, arguments that assets are pre-marital tend to be stymied due to the lack of proof that an asset was indeed premarital.

PNAs serve as very strong evidence of what is premarital and what is not. However, the signing of a PNA does not guarantee that the parties’ premarital assets will be protected. Parties still need to conduct themselves in a manner that is consistent with the agreement that they have entered into, lest arguments that the agreement has been repudiated through parties’ conduct be made by the other party. The High Court’s decision in CLB v CLC thus serves as a timely reminder to parties that a PNA is only as effective as the manner in which they conduct themselves during the marriage.

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