The periodic settlement clause in prenuptial agreements is a common mechanism for making and enforcing financial arrangements during marriage or divorce. This clause, often included in marriage contracts where spouses waive community of property, aims to ensure a fair distribution of assets accumulated during the marriage. Specifically, a periodic settlement clause means that spouses agree to periodically - usually annually - settle certain income, usually the portion of income not used for household purposes. In practice, however, spouses often fail to comply with these clauses during the marriage, which can result in a complex financial settlement upon divorce.

Proper implementation of a periodic settlement clause requires careful administration and transparency between the spouses about their finances. Failure to implement the clause during the marriage leads to a settlement at divorce where the starting point is that all assets are deemed to have been obtained from excess income that should actually have been settled, which can result in significant financial claims from one spouse to the other. The law provides frameworks for this settlement, including how to deal with excess income, investments, and the fruits thereof, but the complexities and nuances of individual cases often require detailed legal analysis and interpretation.

The recent Supreme Court ruling of 8 March 2024 (ECLI:NL:HR:2024:338) sheds new light on the interpretation of these frameworks, particularly with regard to how to deal with debts and claims under the periodic settlement clause. This development has important implications for family law practice and emphasises the importance for spouses and their lawyers to pay attention to compliance with their financial agreements during the marriage.

Core of the ruling

The case revolves around the settlement of prenuptial agreements where the parties did not give effect to the periodic settlement clause during their marriage. The Supreme Court stresses the importance of correctly interpreting and applying the statutory framework for the set-off of unspent earned income, where both debts and claims can be included in the assets to be set off.

Crucially, the Supreme Court considered that debts, like claims, can be part of the assets to be set off, depending on the content of the periodic settlement clause. This is an important departure from the often assumed proposition that debts could not be included in the assets to be set off when settling a periodic settlement clause.

Implications for Legal Practice

 For family law practice, this ruling has implications:

1. Further interpretation of the settlement concept: Legal practice will have to look more carefully at the nature of debts and claims when settling prenuptial agreements, especially when those prenuptial agreements were not given effect to during the marriage. This will require an even more detailed analysis of the prenuptial agreements and the actual financial transactions between the spouses than previously considered necessary.
2. Burden of proof and administration: The ruling once again highlights the importance of proper administration by spouses, especially with regard to the use of excess income saved. The absence of such records can have adverse consequences for the party claiming set-off.
3. Future prenuptial agreements: The ruling may affect how prenuptial agreements are drafted in the future, particularly the provisions on settling the settlement clause. There may be more emphasis on clear agreements on dealing with debts and the required administration.
4. Adjust current prenuptial agreement: This ruling underlines the importance of a proactive and careful approach to financial planning within marriage.Already existing prenuptial agreements can be amended with the new insights in mind.

Conclusion

This Supreme Court ruling sets a new standard for the interpretation and application of the law when settling periodic settlement clauses in prenuptial agreements. It emphasises the importance of thorough administration and provides clarity on dealing with debts in the assets to be settled. For married couples with prenuptial agreements and people intending to marry on prenuptial agreements, it is essential to include this development in the prenuptial agreement to be made ( amended). Need advice on drawing up or amending prenuptial agreements? If so, please contact one of our family law lawyers without obligation.