Beyond the vows: How cross-border couples can approach estate planning

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[DF]: Welcome to our Wealth Advisory Series, where we discuss issues relating to Life and Legacy.

Statistics show that, in many countries, well over 40% of marriages end up in divorce. When contemplating marriage, couples and their families may think about what will happen with their assets if the marriage unravels—particularly when the couple is connected to more than one country.

I’m Diego Fagundes, Wealth Advisor for J.P. Morgan Private Bank in in New York…

[LZ]: … and I am Lucia Zhang, Wealth Advisor based in Hong Kong. Today, we are going to share with you some thoughts on cross-border marriages that we’ve learned after years of working with international families.

Diego, what are the main concerns our clients tend to express before getting married?

[DF]: I recently had an interesting conversation with the head of a Brazilian family. One of her daughters is about to get married here in the U.S. with a Swiss businessman. The couple wants to raise their family between the United States, Switzerland and Brazil. As the mother settled a trust to the benefit of her children, she wanted to check whether she had to change the structure of the trust somehow due to the wedding. The conversation started with the trust, but ended with an unsettling question: Which courts would have jurisdiction in the event of a divorce? Would it be the laws of Brazil or Switzerland, as the countries of nationalities of the spouses? Or would it be the laws of New York, where the marriage would initially be registered?

[LZ]: Diego, this sounds like a case study for law school students! But yes, we are indeed seeing more multi-jurisdictional high-net-worth families. And while clients and their advisors are well versed in tax residency issues, it is less common for them to look into the effects of a marriage and divorce across jurisdictions.

[DF]: That is also my experience, Lucia. And we’re talking about a very important event in people’s lives, which is marriage and, well, divorce too.

[LZ]: Indeed! As a general matter, the law of the place where the marriage takes place may establish what are the rights of each spouse with respect to (i) which are the assets that belong to just one spouse versus those that belong to both spouses; (ii) which is the obligation of support each spouse has towards the other; and (iii) if a spouse has the right to claim the estate of a deceased spouse. When determining financial claims on divorce, the court must look at all the resources available to the parties and seek to achieve a settlement that is fair. In divorce proceedings, the assets to be divided between the spouses include different family assets. Even the trusts set up by other family members for the benefit of one spouse could also be brought into a divorce judgment under certain circumstances.

[DF]: That is correct. It is important to note that these rights established under the law of the place of marriage may differ from the rights a spouse may have under the law of his/her nationality. For instance, countries that follow a forced heirship approach to inheritance typically have laws that establish that in the event of death, the surviving spouse gets a specific percentage of the deceased spouse’s state. In contrast, countries that give individuals broad testamentary freedom may leave that open.

[LZ]: That is why, Diego, it is so important for spouses to understand their rights under the law of the place of marriage. For example, I came across a situation where our client—an entrepreneur from China —wanted to marry his fiancé—also Chinese—in Singapore. Each of them engaged their own independent counsel and found out that there were differences in terms of what was deemed marital property and separate property. They ended up signing a pre-nuptial agreement and agreed to apply a framework akin to the rights of Singapore.

[DF] Yes. Also, high-net-worth families are frequently connected to several jurisdictions, and a couple may need to file divorce in a jurisdiction different from that of marriage. Without an enforceable pre-nup in place, it is up to the courts to decide when spouses cannot come to an agreement about division of assets, assignment of responsibilities, and other arrangements. 

[LZ]: Have you come cross any real case which has dispute on the governing jurisdiction of divorce?

[DF]: I remember the case of this family that went through a divorce. They had built and sold a successful business, and as a result had a diversified portfolio of assets, ranging from financial, real estate and venture capital across several countries. The family had also moved to the U.S. When the couple divorced—without a pre-nup, I must say—there was dispute as to division of assets. One party claimed that the portfolio was built with proceeds acquired when the couple lived in their country of nationality. The other claimed that the law of their domicile in the U.S. should be observed. While the couple was fighting over this, parts of the portfolio were frozen under court order and could not be rebalanced in light of changing market conditions. Bottomline: Cross-border divorces without a pre-nup agreement can get challenging…and expensive.

[LZ] That’s right. Generally, the laws of the residence of the couple govern a divorce. Many jurisdictions across the world allow a couple to enter into a pre-nup that sets out their agreements on their finances should they divorce. Laws in each jurisdiction vary, so independent legal advice before the wedding is paramount.

[DF] Yes, Lucia. To give the best possible chance for a court to accept a pre-nup, each party should:

- Have independent legal advice and enter into the agreement freely 

- Fully disclose all the assets they own when entering the marriage

- Discuss and agree the pre-nup before their wedding

- The agreement itself must not seem one-sided; it should be financially fair to both parties.

[LZ] Agree. Talking about pre-nups may get tricky, but they give couples a chance to establish a mature dialogue about values, priorities and fairness. While not all marriages end well, a successful conversation about money in the event of divorce prior to wedding seems to be a solid ground for longevity.

[DF] Indeed! In fact, some couples that ran out time to work out a pre-nup end up signing a post-nuptial agreement instead. Generally, the validity of a post-nup is subject to similar tests as pre-nups.

[LZ] I know we’re approaching the end of this podcast, but many of our listeners may be wondering if a pre-nup can include details on child custody arrangements.

[DF] That’s a very good question, Lucia. Child custody can become a very contentious issue during divorce proceedings. Most of the courts use a “best interest of the child” standard, but the agreed-upon practices may vary in each jurisdiction and need to be judged on a case-by-case basis. 

[LZ]  Divorce is a complex and exhausting matter, and listening to professional advice and planning in advance are very important. And that is it for our session today. Thank you for joining us. Your Wealth Advisors are here to engage with you and your family. We look forward to hearing from you.

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