6 March 2018
At the end of 2017, the High Court of Australia made an important ruling in a case called Thorne v Kennedy that caused some people question whether it is still worthwhile to enter into Binding Financial Agreements (commonly known as “pre-nuptial agreements” or “pre-nups”).
The Wife was a 36-year-old “Ms Thorne”, who originally lived overseas, had no significant assets, had limited English and had no family in Australia. The Husband was a 67-year-old “Mr Kennedy”, an Australian property developer with assets worth up to $24 million. He was divorced and had three adult children from his previous marriage.
The parties met online and after a short dating period, Ms Thorne moved to Australia to marry Mr Kennedy. Shortly before the wedding, Mr Kennedy told Ms Thorne that his money was for his children and that if she wanted to marry him she would need to sign a Binding Financial Agreement. Ms Thorne did not receive independent legal advice in relation to the Binding Financial Agreement until 10 days before the wedding. Mr Kennedy told Ms Thorne that if she did not sign the Binding Financial Agreement, they would not get married.
Ms Thorne’s lawyer strongly advised her not to sign the Binding Financial Agreement, saying that it was all in Mr Kennedy’s favour. Despite this advice, Ms Thorne nevertheless went ahead and signed the Binding Financial Agreement. The Binding Financial Agreement contained a clause that stated that another Binding Financial Agreement would be signed within 30 days.
Shortly after the wedding, Ms Thorne signed the second Binding Financial Agreement, which revoked the first Binding Financial Agreement, but otherwise contained the same terms. She was again advised by her lawyer not to sign this second Binding Financial Agreement. Under the Binding Financial Agreement, Ms Thorne was to receive a total payment of $50,000 (indexed) in the event of separation and Mr Kennedy was to otherwise retain his assets.
The case went all the way to the High Court, which unanimously decided that both Binding Financial Agreements should be set aside. The High Court found that Ms Thorne had been subject to undue influence and/ or unconscionable conduct. The Court said that Ms Thorne’s situation was “much more than inequality of financial position”, but also took the following factors into account:
- Ms Thorne was only on a temporary tourist visa;
- She was completely reliant on Mr Kennedy;
- She had emotionally prepared herself to start a family with him; and
- She had publicised her upcoming marriage to friends and family, many of whom had already travelled from overseas to attend the wedding.
Basically, if the relationship ended, Ms Thorne would have “no job, no visa, no home, no place, no community”. The situation in which Ms Thorne found herself made her “powerless” and deprived her of making a free choice about whether to sign the Binding Financial Agreements. The Court decided that there were sufficient grounds to set aside the Binding Financial Agreements.
WHAT DOES THIS MEAN FOR US?
This judgment doesn’t necessarily mean that all Binding Financial Agreements will be set aside if its terms aren’t considered fair by a Court. Rather, the following factors will be taken into account when a Court decides whether a Binding Financial Agreement should be set aside for 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.
Binding Financial Agreements can still be useful in protecting your assets. However, care needs to be exercised in the negotiating and drafting of these documents. If you require advice about how to protect your assets, please ring us on (03) 9803 5673 or email us for further information at email@example.com.
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