8 April 2024
A common provision in prenuptial agreements is the ‘regular set-off clause’.
Briefly, the object of such a clause is that during the marriage the spouses ‘set off’ between themselves what they were able to save or invest after fulfilling the usual ongoing expenses each year (generally by halves). In practice, married couples hardly ever give effect to such a clause during marriage. Upon divorce, however, the question then arises whether the set-off should still take place, and if so, how.
The legal principle is that a regular set-off clause, which has not been implemented during the marriage, should still be enforced upon divorce. This means that, in principle, both parties must determine retrospectively what they were able to save and/ or acquire in assets each year and set this off against each other.
A regular set-off clause in prenuptial agreements often also contains a ‘time limit clause’. This stipulates that the right to set off lapses after the expiry of a certain period (e.g. one year after the end of the year for which calculation was due). Case law has established, however, that such a time limit clause is invalid in principle and therefore cannot be invoked if, at the end the marriage, the regular set-off clause has to be enforced because it did not take place during the marriage. ‘In principle’ because while reliance on a time limit clause may succeed under special circumstances, it rarely occurs in practice.
While the intent of a regular set-off clause is generally unambiguous, its content can vary significantly from case to case. It is therefore important to critically and carefully review the text in the prenuptial agreement. In some cases only income or excess income from employment should be set off, while in other cases this also applies to assets accumulated during the marriage. All kinds of variations and combinations are possible, such as income from employment, income from assets, corporate profits or not, as well as inheritance and gifts.
When income that should actually have been set off is invested in other assets, such as savings spent on home renovation or contributed to a business, this often leads to complications. In principle, the proceeds from excess income (e.g. capital gains or dividends) are also eligible for set-off.
Particularly after long marriages, in which businesses or the purchase and sale and conversion of property have played a role, identifying the assets to be set off can be a complicated task.
The legislature then extends a helping hand, by adopting a ‘legal presumption’. This sets out details of the evidence to be provided. If the spouse invoking the set-off clause can make it sufficiently clear that an obligation to set off exists, it is up to the spouse wishing to exclude certain items from the set-off to make it clear that these items were financed or partly financed by means other than income or assets that were covered by the set-off clause.
In other words, where a set-off clause has not been implemented, properly maintained records (or indeed the lack thereof) during the marital period are essential. Another solution would be to amend or remove a clause entirely from the prenuptial agreement that will not be enforced anyway.
If you have questions about the regular set-off clause, please do not hesitate to contact me.
