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Home | Blog | “Prenups” Beware

A tale as old as time, boy meets girl and they fall in love …on a bride website of course.  Boy is charmed by girl’s exotic European nature and being the multimillion dollar property developer he is, he flies her out to Australia to live in his penthouse. She speaks no English, has no kids and little assets to her name. They fall in love and decide to get married, on one condition she signs a “prenup”. What could possibly go wrong?

The matter Thorne v Kennedy [2017] HCA 49 landed in the lap of the High Court of Australia to examine the nature of Financial Agreements and their validity.

In their decision, not one but two financial agreements were assessed and set aside one made prior to the marriage and the one made after the marriage.

The Facts

Ms Thorne and Mr Kennedy  met online in 2006. Ms Thorne lived overseas spoke little English, had minimal assets and no children. Mr Kennedy was a multimillion dollar property developer and had 3 adult children.  Ms Thorne moved to Australia and the pair married about a year later.

10 days before the wedding Mr Kennedy told Ms Thorne she must sign a financial agreement otherwise he would not marry her as his children were to receive his good fortune. Ms Thorne signed the agreement 4 days before the wedding despite getting independent legal advice from a solicitor who told her “it was the worst agreement she had ever seen, don’t sign it”. Ms Thorne told her solicitor that she felt she had no choice as she would have no home, no visa and no money if the wedding was called off. Her family had also been flown to Australia for the wedding by Mr Kennedy and would not be able to return home if Mr Kennedy did not assist with airfares. She felt stuck and signed the first agreement.

Four days after the wedding Mr Kennedy drove Ms Thorne to her solicitor to sign a second agreement, on the same terms as the first. Ms Thorne’s solicitor advised again that the agreement was not in her interest and and again that she should not sign. Ms Thorne signed the second agreement.

The parties separated some 4 years later and Ms Thorne commenced proceedings in the Federal Circuit Court, seeking orders under the Family Law Act 1975 (“FLA”) that both agreements be declared not to be binding and/or to be set aside, orders for a property settlement and spousal maintenance. Mr Kennedy died part way through the hearing.

The Factors and Decisions: Duress

In the Federal Circuit Court the primary Judge found that neither agreement was valid on the basis of duress.

The trial Judge’s decision in favour of Ms Thorne was categorised by the following:

  1. Her lack of financial equality with the husband;
  2. Her lack of permanent status in Australia at the time;
  3. Her reliance on the husband for all things;
  4. Her emotional connectedness to their relationship and the prospect of motherhood;
  5. Her emotional preparation for marriage; and
  6. The “publicness” of her upcoming marriage.

The matter then progressed to the Full Court where Mr Kennedy’s estate appealed the decision. Here, the trial Judge’s findings were rejected.

Unanimously, the High Court set aside the two agreements for unconscionable conduct. The majority also concluded that the financial agreements were void on the grounds of undue influence, finding it unnecessary to decide whether there was duress. The High Court utilised the following 6 factors as guidance:

  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 that was received and whether there was time to reflect on that advice.

What did the decision do?

In making such a decision the High Court explained the distinctions between undue influence, duress and unconscionable conduct, separating them rather than using them interchangeably. It also diminished doubt as to whether undue influence can arise where a party has received independent legal advice.

The High Court’s adoption of the 6 factors to take into account also provides a guide for future cases. Whilst these are not exclusive and are helpful, the question remains as to how these factors will be applied to future cases, what weight is given to each and does each factor need to be relevant?  There is a warrant that when applying these to facts of future cases that other issues may arise.

The principles of undue influence and unconscionable conduct within the Family Law Act is still to be explored, however, the decision of Thorne v Kennedy is a reminder that a “prenup” or financial agreement may not be binding even when the words “Binding Financial Agreements” are thrown around.

If you have concerns about a family law matter, call our Parramatta office to speak to a Family Law Accredited Specialist.

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