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Pre-Nups – Unfair May Mean Unbinding

Amity Anderson and Kiara Greenway

Once again the pre-nup area of law has created confusion, heartache and uncertainty for judges,  family lawyers and clients. Binding Financial Agreements (that include pre-nups) have been a contentious and consistently tested and challenged space in the family law realm for some time. Conflict can arise from these Agreements for countless reasons – the agreement is grossly unfair; it was prepared hastily; one party was ‘forced’ to sign; it was signed in the limo on the way to the church (Hollywood style); or one party ceases or refuses to comply with its terms. So, the Court needs to then consider, should the Agreement be set aside or enforced, which is where the core of the confusion often lies. A recent decision of the High Court of Australia has brought some clarity to the scene.

The landmark ruling of Thorne and Kennedy [2017] HCA 49, saw the High Court effectively throw out a prenuptial and postnuptial financial agreements between an Australian property developer and his bride. The High Court upheld the primary Judge’s decision to set aside the Agreements because they were entered into through undue influence and unconscionable conduct. The appellant wife, Ms Thorne was deemed to be ‘powerless’ and had ‘no choice’ but to sign the ‘wholly inadequate’ pre-nup after the respondent, Mr Kennedy threatened to cancel the wedding just four days before the planned nuptials.

After less than four years of marriage, they separated and Ms Thorne started proceedings to have the pre and post-nups set aside and for her to receive a settlement of $1.1 million and lump sum maintenance of $104,000.

Mr Kennedy died in 2014 during the trial and the proceedings were continued with his children being substituted as parties for him.

In its decision, the High Court took the rare opportunity to hone in on the law surrounding undue influence, unconscionable conduct and duress as it applies to Relationship Financial Agreements. This decision highlights the importance of ensuring that the terms of Binding Financial Agreements are fair and reasonable to both parties. The High Court has made it clear that the failure for fair terms and subsequent pressure to sign can result in the Agreement being set aside.

Facts of the case

The parties met on a dating website for potential brides. Shortly after meeting in person, they became engaged. Ms Thorne moved to Australia on a tourist visa with the intention of marrying Mr Kennedy. Mr Kennedy was a 67 year old Australian property developer, worth between $18 and $24 million. He was divorced with three adult children. Ms Thorne, a 36 year old Eastern European woman, was living in the Middle East with no substantial assets and limited English abilities. In the words of the primary Judge, Ms Thorne came to Australia leaving behind “her life and minimal possessions… If the relationship ended, she would have nothing. No job, no visa, no home, no place, no community”.

Mr Kennedy initially told his fiancée, “If I like you I will marry you but you will have to sign paper. My money is for my children.” Four days prior to the wedding, Mr Kennedy forced Ms Thorne to sign a prenup. The advice of her lawyer at the time was clear that the Agreement was “entirely inappropriate” and that “she should not sign it”. This “inappropriate” Agreement provided that:

  1. if they separated within three years of marriage, Ms Thorne would receive nothing; and
  2. if they separated after three years of marriage, she would receive a lump sum of $50,000 (CPI adjusted).

A post-nup agreement that was signed 30 days after the wedding was virtually identical and confirmed the terms.

Ms Thorne’s lawyer, Ms Harrison described the Prenuptial Agreement as “the worst agreement ever” and advised Ms Thorne that its terms were wholly inadequate and did not show any consideration for Ms Thorne’s interests.

Despite the strong advice, Ms Thorne signed the Agreement because she relied “on Mr Kennedy for all things”, the wedding and reception had been booked and her parents and sister had been flown to Australia from Eastern Europe and accommodated for the wedding by Mr Kennedy. Guests had been invited and Ms Thorne’s dress had been made.

The trial Judge remarked that “every bargaining chip and every power was in Mr Kennedy’s hands. Either the document, as it was, was signed, or the relationship was at an end. The husband made that clear.” Her Honour also explained that Ms Thorne’s situation was “much more than inequality of financial position.”

The primary judge set out six matters which, in combination, led her to the conclusion that Ms Thorne had “no choice” or was powerless:

  • her lack of financial equality with Mr Kennedy;
  • her lack of permanent status in Australia at the time;
  • her reliance on Mr Kennedy for all things;
  • her emotional connectedness to their relationship and the prospect of motherhood;
  • her emotional preparation for marriage;
  • the “publicness” of her upcoming marriage.

The trial judge initially set aside the Agreements for duress and undue influence. The Full Court, however, subsequently overturned the decision and said the Agreements were binding, on the basis that the trial judge failed to provide adequate reasons for making its findings.

The High Court of Australia’s decision

The High Court, confirming the trial judge’s decision, overturned the Full Court’s decision. The High Court said the Agreements had been entered into because of undue influence and unconscionable conduct. The High Court majority ultimately established that whilst the nature of pre-nups is such that they are often more favourable to one party, this can be indicative circumstances of undue influence where the agreement is signed even where it is grossly unreasonable.

The High Court majority found that even without Ms Harrison’s evidence, it is plain that some of the terms of the agreements could not have operated more adversely to Ms Thorne.

The High Court also said that Ms Thorne’s “lack of financial equality” with Mr Kennedy and her “lack of permanent status in Australia” would have contributed to her total reliance on Mr Kennedy. The Court also considered that she was effected by an “emotional connectedness to their relationship and the prospect of motherhood”.

The High Court also provided guidance for future Financial Agreements and a number of factors that, if present, could give rise to a finding of undue influence:

  • whether the Agreement was offered on a basis that it was not subject to negotiation;
  • the emotional circumstances in which the Agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement;
  • whether there was any time for careful reflection;
  • the nature of the parties’ relationship;
  • the relative financial positions of the parties; and
  • the independent advice that was received and whether there was time to reflect on that advice.

In finding that the agreements were entered into by unconscionable conduct, the High Court held that Ms Thorne was at a “special disadvantage” when entering the Agreement. This was due, in part, to the urgency and haste surrounding the signing of the Agreements so close to the wedding. Mr Kennedy was aware of this and took advantage of Ms Thorne.

So, what does this mean for lawyers and parties who are considering a financial agreement?

  1. The terms need to be fair and reasonable.
  2. The agreement must be presented to the ‘disadvantaged’ party so as to ensure there is room for negotiation.
  3. The need for detailed and targeted legal advice remains a necessity but will not always be a sufficient defence to an assertion of unconscionable conduct.

If you are considering entering into a Binding Financial Agreement, it’s essential that you seek legal advice before doing so. Not only is a legislative requirement but it is important to assist you to understand your rights and entitlements. We are able to assist with all enquiries of this nature, and invite you to contact one of our offices to see how we can assist you.