Pre-nuptial agreements - Alive and kicking?

- 10 November 2017

Summary

On Wednesday 8 November the much anticipated decision of Thorne & Kennedy [2017] HCA 49 was handed down by the High Court of Australia. The Court granted the appeal of the Wife in this matter to overturn the decision of the Full Court of Australia as to the validity of two financial agreements entered into between the parties prior to their separation. 

The High Court upheld the initial decision of the Federal Circuit Court that the agreements were not binding on the parties due primarily to the equitable principles of undue influence and unconscionable conduct.

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About the Thorne & Kennedy Case

The case relates to the relationship and marriage of Ms Thorne and Mr Kennedy who met online in 2006 when Ms Thorne, an Eastern European woman, 36 years old, was living in the Middle East. After communicating online for a period, the parties met on two occasions before deciding that Ms Thorne would move to Australia to live with Mr Kennedy and the two would marry. Ms Thorne brought little by way of assets to the relationship. Mr Kennedy (aged 67) was a successful property developer who already had three adult children. It was Mr Kennedy's desire to preserve his wealth (standing somewhere between $18m and $24m) for his adult children.

In the weeks leading up to the wedding, Mr Kennedy commissioned the preparation of a financial agreement which provided that Ms Thorne would receive certain funds during the relationship and also in the event he predeceased her during their relationship. But in the event of separation within three years she would receive no financial settlement and thereafter the sum of $50,000 only (to be indexed with CPI). Mr Kennedy made it clear to Ms Thorne that should she not sign the agreement then the wedding would not go ahead. At this stage, members of Ms Thorne's family had travelled to Australia for the wedding and all the arrangements had been made. If Ms Thorne had refused to sign the Agreement, then the wedding would in all certainty have been cancelled. Ms Thorne would have been left with the prospect of having no relationship, no job, no ability to stay in Australia and no financial support.

While Ms Thorne received independent legal advice in the weeks before the wedding which strongly advised against entering into the agreement on the basis that it was "the worst agreement the lawyer had ever seen" and "entirely inappropriate", she executed the agreement four days prior to the wedding and the parties were subsequently married.

About six weeks later, Mr Kennedy sought for Ms Thorne to enter into a further agreement, this time pursuant to s90C of the Family Law Act 1975 (being an agreement entered into after marriage) in almost identical terms to the first. Ms Thorne again received independent legal advice that she should not enter into the agreement as the terms of the agreement were inadequate. Whilst she was meeting with her lawyer, Mr Kennedy telephoned her and told her to "hurry up".

Almost four years later Mr Kennedy notified Ms Thorne that he wished to separate and she subsequently made an application to the Federal Circuit Court of Australia seeking to set aside the agreement and property settlement.  

Federal Court Judge found agreements void at first instance

At first instance the Federal Circuit Court Judge found that the agreements were void due to duress (but the definition afforded by the Judge more naturally fell within the equitable remedy of undue influence) and unconscionable conduct on the part of the husband.  

Full Court of the Family Court of Australia found the Agreements were binding

During the proceedings the husband passed away and his Estate continued the proceedings and appealed to the Full Court of the Family Court of Australia which found that the Agreements were binding, overturning the initial Judge's decision.

Ms Thorne then appealed to the High Court of Australia.

This case clarifies the definition and circumstances where undue influence and unconscionable conduct will be found to exist to set aside the binding nature of a financial agreement under pt V111A of the Family Law Act 1975.

The court found that the circumstances created by the husband both in his superior financial position and in relation to the pressure he brought to bear on the wife created a set of circumstances which overcame the wife's free will, put her at a special disadvantage and took advantage of that circumstance.

In particular the High Court agreed with the first instance Judge that some of the factors to take into consideration include the following:

  1. Whether the agreement was offered on a basis that it was not subject to negotiation;
  2. The emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement;
  3. Whether there was any time for careful reflection;
  4. The nature of the parties' relationship;
  5. The relative financial positions of the parties; and 
  6. The independent advice which was received and whether there was time to reflect on that advice.  

Pre-nuptial agreements remain valid

While these circumstances are unique to this case, the authority provided by the High Court reinforces that particular care and skill is required when drafting Financial Agreements.

While this cautionary tale is not new to those lawyers who regularly prepare financial agreements for their client, it serves as a timely reminder that while some financial agreements may be financially advantageous to one party to the detriment of the other, the ideals of fairness and equity are not altogether ousted by these agreements. It is still possible to negotiate a financial agreement, the terms of which are acceptable to both parties but may not reflect what a court may order if asked to determine a property adjustment between the parties. There is still great scope for parties to reach agreement in relation to their current and future financial circumstances by way of Financial Agreement, if such Agreements have been properly and carefully considered and drafted.

To discuss this topic further, please contact our Family & Relationship Law team.

Further information

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