Prenuptial Agreements - are they still binding?
This article considers the impact of the judgement of the High Court of Australia in Thorne v Kennedy  HCA 49 upon prenuptial agreements.
The facts in this case are worth noting:
1. The parties met on an online website for potential brides.
2. The wife was 36 years of age with no substantial assets and living in the Middle East.
3. The husband was 67 years of age with assets worth between $18 million and $24 million and was living in Australia.
4. The timeline surrounding the wedding date, drafting of and providing notice with respect to the Financial Agreement appear to be significant.
5. The husband instructed a solicitor to draft the Agreement on 8 August 2007.
6. On or about 19 September 2007 the wife was made aware that she was required to sign an Agreement and told that if she did not the marriage would not take place.
7. The wife first attended upon her solicitor on 20 September 2007 and on 21 September 2007 the wife was provided with strong advice that she should not to sign the Agreement. At this stage the wedding venue was booked, all arrangements for the wedding nearly finalized and the wife’s family were staying with her at the husband’s residence. There was no evidence that the husband had mentioned any assistance would be provided to the wife enabling her to return to the Middle East if she did not sign the Agreement.
8. The wife signed the Agreement on 26 September 2007 and the parties married on 30 September 2007.
9. The Agreement provided for the wife to receive maintenance of approximately $4,000 per month and a penthouse apartment during the marriage. That the wife would receive nothing if the parties separated within three years, however if they separated after three years she would receive a lump sum of $50,000. That if the husband died while they were still in a relationship then the wife would receive a penthouse worth up to $1,500,000, the vehicle in her possession and approximately $5,000 per month.
While some family lawyers may be running for the hills when it comes to the preparation of a Financial Agreement prior to or during marriage, we aren’t at TML Family Law. The High Court judgement provides a refresher on the common law principles of duress, undue influence and unconscionable conduct, and arguably provides us with a guide to ensure that Financial Agreements aren’t overturned.
Duress is probably best summarized within the judgement at paragraph 26:
“The vitiating factor of duress focuses upon the effect of a particular type of pressure on the person seeking to set aside the transaction. It does not require that the person’s will be overborne. Nor does it require that the pressure be such as to deprive the person of any free agency or ability to decide.”
The case does not go further to consider whether the agreements could be set aside based on duress and whether there was unlawful conduct or whether that was required as it was deemed unnecessary.
As to undue influence, Story¹ is referenced at paragraph 31 stating:
“The constant rule in Equity is, that where a party is not a free agent, and is not equal to protecting himself, the Court will protect him”
Essentially, undue influence comes down to an evaluation of the transaction and whether it can be determined that the party acted with free will.
Unconscionable conduct was discussed at paragraph 38 of the judgement restating Kakavas v Crown Melbourne Ltd (2013) 250. “A conclusion of unconscionable conduct requires the innocent party to be subject to a special disadvantage “which seriously affects the ability of the innocent party to make a judgement as to [the innocent party’s] own best interests” The other party must also unconscientiously take advantage of that special disadvantage”.
The primary judge found that the wife, in signing an agreement that was so unfair and so disadvantageous to her, must have succumb to duress or undue influence. The High Court, at paragraph 47 of the judgement, importantly referred to six matters outlined by the primary judge which lead her to the conclusion of duress or undue influence as:
1. her lack of financial equality with the husband;
2. lack of permanent status in Australia;
3. reliance on the husband for all things;
4. the emotional connectedness to the relationship and a desire to have a child;
5. the emotional preparation for marriage; and
6. how public the upcoming marriage was.
This paragraph further references the primary judgement at paragraph’s 91 to 92 where the primary judge says “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.”
What is important to note is that it is not the existence of a merely “unfair” agreement that could have this result. The agreement needs to be so wholly unfair that it could not be said a party to the Agreement would sign it of their own free will.
Paragraph 60 provides the most assistance for a party looking to enter into a financial agreement and the following questions should be asked:
“(i) whether the agreement was offered on a basis that it was not subject to negotiation;
(ii) the emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement;
(iii) whether there was any time for careful reflection;
(iv) the nature of the parties’ relationship;
(v) the relative financial positions of the parties; and
(vi) the independent advice that was received and whether there was time to reflect on that advice.”
The situation for the husband could have been avoided if the agreement was drafted to reflect significantly better terms for the wife, if there was more time provided for negotiation, amendment and discussion of the terms, prior to a marriage date, if there was no threat that the agreement had to be signed as is or the marriage would end.
With careful attention to the six factors that resulted in the Agreements being set aside by the High Court Financial Agreements or pre-nuptial / post-nuptial agreements are still something that a client needs to have.
¹ Story, Commentaries on Equity Jurisprudence, as Administered in England and America, (1836), vol 1 at 243.
For further information on Financial Agremeents or pre/post-nuptial agreements, please contact TML Family Law.