Pre-nuptial Agreements in Australia - Are They Still Valid?
The High Court case of Thorne v Kennedy has received a lot of attention in the press – with questions being asked as to the impact the case would have on Binding Financial Agreements (BFA’s) in Australia.
“Binding Financial Agreements” are how “pre-nuptial” or “post-nuptial” agreements are known in Australia. Since 2000, these agreements have been possible under Australian law to be entered into before the commencement of a marriage of de facto relationship, during a marriage or de facto or relationship, or after marriage or de facto relationship has ended.
However, as the Agreements are not Court Orders, they do not hold the authority of the Court, and a dissatisfied party may apply to the Court for the BFA to be set aside (or determined by the Court to be unenforceable). That’s exactly what happened in the case of Thorne v Kennedy – a case in which the parties had entered into a BFA in the lead up to their marriage, and then another BFA shortly after their marriage. The parties separated about four years after the marriage, and the Wife applied to the Family Court of Australia to have both Agreements set aside.
Perhaps the reasons the case has aroused so much interest, and was expected to be so important for the law in Australia regarding BFAs, were two-fold.
Firstly, there was a very large difference in wealth between the parties. The Husbands net wealth was in the range of $18 million dollars to $24 million dollars. The Wife – who the Husband met on the internet – came to Australia from another country to be with the husband, and with the intention (shared by the Husband) that they would be married. She had no job, no money, no assets (either in Australia or overseas), no friends or family in Australia, and no English language skills. She and the husband communicated with each other in the Greek language.
Secondly, it was not disputed between the parties that – from the outset of the relationship – the Husband made clear to the Wife that if he died or the relationship ended, he intended that his assets were to be protected for his adult children. Therefore, it was apparently agreed and understood between the Husband and Wife that that the Wife would not receive a large property settlement from the Husband if they separated, nor would she inherit his wealth if he died during the marriage.
Therefore, the BFA was created in the same circumstances many BFA’s are in Australia – instigated by the financially stronger party, and drafted and signed with the intention for that party of protecting their wealth in the event of a separation. Also like many BFAs entered into in Australia, the BFA was signed by the Wife knowing the intention was for the Husband to protect his wealth (for the benefit of his children), and despite legal advice from her independent lawyer who advised her the Agreement was not in her best interests, and perhaps one of the most inequitable and disadvantageous BFAs she (the lawyer) had ever seen.
So although a person reading this may wonder why on earth the BFA was entered into by the wife, as is made clear above, this situation is quite common in Australia. Therefore, Australian family lawyers, court reporters and commentators, were all on the edge of their seats in the lead up to the decision being handed down. The BFAs had been set aside (or, not enforced) in the Family Court, then the Full Court of the Family Court had upheld (or, decided the BFAs should be enforced), and therefore the case proceeded to the highest Court in the land – the High Court of Australia – after which there could be no further appeal by either party.
The decision was handed down by the High Court on 8 November 2017, under the name of Thorne v Kennedy (under Australian law, cases are published with pseudonyms to protect the privacy of the people involved).
The decision of the Court was to set aside both BFAs – that is – the High Court held that both BFAs would not be enforced, the Wife was permitted to bring an Application in the Court for a property settlement, and the Husband’s executors (who had carried on the case on behalf of the Husband after he passed away during the litigation) were to pay the Wife’s costs.
The High Court made these Orders for numerous reasons, but of particular interest is that the Wife had “no choice” and was “powerless” in opposing the BFAs and that the Husband’s conduct was “unconscionable”.
The Court held that Ms Thorne was at a “special disadvantage” when negotiating the BFAs because she was “powerless” and had “no choice” but to enter the agreements. Further, according to the Court:
Ms Thorne’s special disadvantage was known to Mr Kennedy. Her special disadvantage had been, in part, created by him. He created the urgency with which the pre-nuptial agreement was required to be signed and the haste surrounding the post-nuptial agreement and the advice upon it. Whilst Ms Thorne knew Mr Kennedy required her acknowledgement that his death would not result in her receiving a windfall inheritance at the expense of his children, she had no reason to anticipate an intention on his part to insist upon terms of marriage that were as unreasonable as those contained in the agreements. Further, Ms Thorne and her family members had been bought to Australia for the wedding by Mr Kennedy and his ultimatum was not accompanied by any offer to assist them to return home. These matters increased the pressure which contributed to the substantial subordination of Ms Thorne’s free will in relation to the agreements. Mr Kennedy took advantage of Ms Thorne’s vulnerability to obtain agreements which, on Ms Harrison’s uncontested assessment, were entirely inappropriate and wholly inadequate. Even within that class of agreement, the agreements which Ms Thorne signed involved “gross inequality.”
So what does all this mean to parties in Australia who are wishing to enter into a BFA with their partner – whether to explicitly protect their assets as was the case in Thorne v Kennedy – or more generally, simply to promote harmony and understanding between parties to a de facto relationship or marriage regarding how their assets and liabilities will be divided in the event of a breakdown of the relationship?
At Argent Law, we receive inquiries weekly from parties wishing to enter into a BFA. So what will we be telling our clients now about BFAs in light of the outcome in Thorne v Kennedy? Perhaps it may surprise you to learn that our advice is likely to change minimally – if at all!
This is because questions of inequitable bargaining power, undue influence, unconscionability, whether an agreement is advantageous or disadvantageous – and even clients entering into BFAs against their solicitor’s advice – are all aspects of the law surrounding BFAs and how the specific facts of each particular BFA affect its enforceability, are well known – and always have been! These are matters that any experienced, knowledgeable and conscientious solicitor practising in family law would be advising their clients on already!
In particular, this case makes clear the importance of the process of obtaining independent legal advice not only about the terms of the agreement itself, but also about the process under which the BFA has been negotiated and finalised.
At Argent Law, we pride ourselves in always providing thorough, up to date, and written advice for our clients regarding BFAs. We ensure that our clients fully understand our advice before signing a BFA – including by confirming our advice in writing.
The risks associated with BFAs are such that you should only take advice from an experienced and qualified lawyer on this aspect of family law, and that your lawyer is not simply “rubber stamping” the BFA because you – as a client – initially attend our offices as a mere formality because in order to bind the parties, a solicitor must “witness your signature”. This is a grave misunderstanding clients sometimes bring to us – especially if the BFA has been drafted by the other party, and if our client erroneously envisages simply that as the parties have come to an agreement, all that is required to finalise the Agreement is both parties’ signatures.
On the contrary, in order for a BFA to be upheld and actually bind the parties, both parties to the Agreement must have independent legal advice, and as the case of Thorne v Kennedy shows – legal advice as to the process of reaching the agreement, and excellent records of the advice given, are a must!
If you would like advice and representation regarding entering into a BFA, Stephanie Hope (Senior Associate) and Melissa Patterson (Director) are experienced in providing the high level of legal advice and representation required to ensure any BFA you enter has the strongest chance possible of being upheld by the Court.