Prenuptial Agreements in China
By Zhang Xian Chu[1]
I. Background
Prior to the passing of the Marriage Law in 2001, there was no legal provision for the recognition of prenuptial agreements.. Under the old law, there was a presumption that all matrimonial assets in a marriage were under joint ownership. Following the growth of the market economy in China, the increased wealth of individuals and the increased complexity of their wealth with a rise in intellectual property rights and the ownership of stocks and shares, it became apparent that a change in the legislation was necessary.
II.The Law
A. The Marriage Law 2001
The 2001 Marriage Law included new articles dealing with pre marriage or pre nuptial agreements.
Under Article 17 of the Marriage Law, the previous law is retained in that all earning income and capital of the parties is to be considered under joint ownership except if the parties have agreed otherwise (Article 19). The door was therefore open to the concept of prenuptials being capable of changing the usual practice Family Law in China and of the Court.
Article 19 provides that a Husband or Wife may, by agreement, stipulate the belongings of the parties either before of after the marriage. Further, an agreement can provide ownership of property, whether it be held jointly, partially jointly or by individual ownership. All the agreement requires is that it has to be in writing. If the agreement is unclear or fails to cover everything, than the original rule of joint ownership will apply.
Article 19 further provides that such an agreement shall have binding force on the Husband and Wife. It has the same effect as a civil contract.
Article 19 also provides that, should either party be indebted to a third party at the time of the agreement, if the third party is aware of the agreement, then the Husband or Wife (whoever is indebted) should use his/her own property to settle the debt.
B. The Supreme Court of the PRC Interpretations
There have been two Interpretations of the new law since its inception in 2001.The first Interpretation is dated 25th December 2001 in which the Supreme Court stated that, when a party was applying under Article 19 in connection with a third party's knowledge of the agreement and the effect this has on the repayment of a loan, it was stipulated that the burden of proof was on the Husband and Wife to show that the third party had knowledge of the agreement.
The Supreme Court further stipulated that if originally the loan was under the responsibility of either the Husband or the Wife, the loan would not form part of the joint ownership under the previous law, unless specifically agreed otherwise.
In 2003 the Supreme Court issued its second Interpretation of the new law. Under this Interpretation the Court tried to further clarify the property which could be the subject of joint ownership, and therefore be then subject to the parties agreement if applicable.
Property which could be considered included one party'sinvestment income, housing allowance,insurance, unemployment compensation and income from intellectual property rights. All of this type of property could be subject to Article 19 and therefore subject to agreement with the rest of the matrimonial assets if any. Under a prenuptial agreement the Husband and Wife should stipulate the property owned during the marriage period.
An interpretation of Article 17 provides for five 5 categories or income which can be the subject of division. Included are an employees salary and bonuses, iIncome from a private business, income from intellectual property, income from succession and income from property under joint ownership (under this category it is stipulated that the Husband and Wife have equal rights.
Article 18 stipulates that, in the absence of agreement, the property which will be subject to division should not include compensation for personal injury or gifts under a will which have been specifically donated to one party.
The legislation is therefore clearly grappling with the problem of what property should be subject to division after a martial breakdown. The law is new and there are many uncertainties. It is therefore advisable when drafting a prenuptial agreement in China, that the property to which the parties refer is clearly identifiable.
III.The Big Picture
Prenuptial agreements are becoming increasingly popular in the big cities such as Shanghai and Beijing particularly with the younger generation. They are known as pre marriage property certifications or notorisations. In the countryside and with the older generation, the story is very different. Disputes are still handled within the family to a large extent. People have not traditionally viewed themselves as autonomous relying more on communal or strong family values, but the trend towards financial independence and legal self protection has started in China.
Prenuptial agreements are becoming fashionable and the Government clearly wants to offer the people this option in the legislature but even in the big cities there have not been many cases involving prenuptial agreements as the new legislation has only had a 2-3 year history. There is much discussion as to how the new law can be used but not much practical guidance. It would appear that, in the absence of clarity, Article 19 would take the parties back to joint ownership.
In China, the people are not used to seeking advice from a lawyer. Many young people imagine that they can agree on everything to do with the financial considerations between themselves, and then write out their agreement . However, it is not enforceable, in which case the agreement is void and the default position is joint ownership. In particular, the young people who are attracted to this option do not anticipate how their assets will change over time such as other legal agreements which may effect a settlement,including agreements under Company law relating to the transfer of shares. It is therefore not only important to be clear about the property which is the subject of the agreement but to keep this information updated to ensure that the agreement remains enforceable.
There are no specific essential terms for a prenuptial agreement in the PRC but from the recent law it would seem to be advisable to include an exact description of the property to be covered be the agreement and a clear specification as to the division of assets, be it by a formula or a percentage. It is also advisable to keep the document closely updated to reflect the latest position.
[1] Associate Professor, Associate Dean, Faculty of Law, The University of Hong Kong, Deputy Director, Institute of China and Global Development