BY SARAH CAMM
Some people think that they can have their wedding cake and eat it too.
The most common way of protecting assets for people entering new relationships after the break down of a previous one, particularly where there are children from a former relationship, is to enter a “Pre- Nup” or Binding Financial Agreements (“BFAs”) as they are more correctly known.
On 8 November 2017 the High Court of Australia handed down its decision in the case of Thorne v Kennedy. The decision has been hailed by some commentators as a landmark case, which spells the “death knell” for BFA’s.
However, in our view this is an overstatement. Binding Financial Agreements will continue to be an important means of protecting family assets for the children of previous relationships. However, the decision provides a salutary warning for those intent upon imposing one sided agreements on their prospective partner with little consideration of their future needs and the capacity to properly provide for them in the event that the relationship breakdown.
The case revolves around the couple of “Ms Thorne” and “Mr Kennedy”. This is not their real names.
The couple met online. Ms Thorne was 36 years old at the time, lived in the Middle East, and had no substantial assets. About seven months into the relationship she moved to Australia to be with Mr Kennedy, a 67 year old property developer whose approximate wealth was between 18 and 24 million dollars.
Under the Family Law Act a BFA is only binding if each party receives independent advice. Nine months after moving to Australia and ten days before the wedding Mr Kennedy took Ms Thorne to see a solicitor regarding the pre-nup. Mr Kennedy waited in the car outside. This was the first time Ms Thorne was made aware of the contents of the agreement she was expected to sign. The solicitor provided written advice to Ms Thorne regarding the agreement. Her advice was that it was “the worst agreement that she had ever seen”, that it was “entirely inappropriate” and that “Ms Thorne should not sign it.”
Despite this, four days before the wedding Ms Thorne signed the agreement.
A second agreement was signed approximately four weeks after the wedding, which was in substantially the same terms and to which Ms Thorne’s solicitor gave the same advice, urging her not to sign it.
Just under four years after the wedding, Mr Kennedy separated from Ms Thorne.
Under the agreement, as they had separated after three years without children, Ms Thorne was entitled only to a lump sum of $50,000. After receiving advice by chance from someone at a hairdressers, Ms Thorne commenced proceedings. Mr Kennedy died during the trial and the trustees of his estate, his two children, were substituted as parties.
Ms Thorne was successful at trial, lost the Full Court appeal, and has now had her appeal upheld and the original decision reinstated.
The High Court held that the agreements were void because they were signed under circumstances of undue influence and unconscionable conduct. Both concepts are wide, and difficult to define, particularly as they overlap quite substantially. In general however, undue influence looks at the quality of the weaker person’s consent, while unconscionable conduct looks at the behaviour of the stronger party.
The majority found that terms which are “grossly unreasonable, even for agreements of this nature” which usually contain some imbalance, are an indicator of the presence of undue influence. However, this may not mean the death of all BFAs as some commentators have claimed.
The majority noted that the primary judge found, in this case, that the inequality of bargaining power went beyond merely a difference in financial circumstances, and included:
- Ms Thorne’s visa status;
- Ms Thorne’s reliance on Mr Kennedy for all things;
- Ms Thorne’s emotional connection to the relationship, which she did not envision would end in separation;
- Ms Thorne’s desire for motherhood;
- Ms Thorne’s wish for her marriage to succeed;
- The time pressure; and
- The “publicness” of the upcoming wedding.
They held that undue influence involves pressure which deprives a person of their free choice, and that here Ms Thorne, for the above reasons, felt “powerless” and that she had “no choice” but to sign, and the agreements should therefore be set aside.
The majority and Nettle J went on to say that the agreements could also be set aside for unconscionable conduct, as Ms Thorne was at a special disadvantage in signing the agreements which Mr Kennedy not only was aware and took advantage of, but that he had partially created in particular through the timeframe he had imposed on her understanding and signing the agreements before the marriage.
Gordon J agreed that the agreements should be set aside but found that this could be on the basis of unconscionable conduct only. She said that undue influence did not exist here as Ms Thorne’s will was not overborne. Ms Thorne made a decision to enter into the marriage and was aware that in order to enter into the marriage she had to sign the agreement. The fact that her options were limited (sign the agreement and get married or do not sign the agreement and do not get married) does not mean she did not make a free choice to (a) get married, and (b) in order to have that marriage, sign the agreement.
The news stories shouting that this decision signals the “death knell” for BFAs are in our view both over-stating and over-simplifying the decision. The High Court expressly stated that fiancé-fiancée relationships do not give rise to a presumption of undue influence. In cases with less extreme circumstances, for instance, if Ms Thorne was aware of the contents of the pre-nup before moving to Australia and the agreement to distribute the property of the marriage was more even handed, a BFA or pre-nup may be upheld by a Court if challenged.
This article is not designed to act as or replace the provision of legal advice. To review the terms of your pre-nup or for specialist advice regarding the validity of your BFA contact Just Us Lawyers for a quote today.