The Family Law Act 1975 (“the Act”) permits parties to a marriage or a de facto relationship to enter into a Financial Agreement to deal with financial matters and the division of property in the event of a marital or relationship breakdown.
By entering into a Financial Agreement, parties “opt out” of the Court’s jurisdiction and ultimately give up their rights under the Act for their property settlement and or spousal maintenance obligations to be determined by a Court. As a result, both parties must obtain independent legal advice prior to entering into a Financial Agreement. After the agreement has been entered into, if the necessary statutory requirements are complied with, it can be very difficult to have the Financial Agreement set aside.
The landmark 2017 case of Thorne v Kennedy resulted in a Financial Agreement being unanimously set aside by the High Court for unconscionable conduct on the husband’s behalf. The case concerned two substantially identical Financial Agreements made under the Act, namely, a pre-nuptial Agreement and an overriding Financial Agreement entered after the parties’ marriage.
By way of background, Ms. Thorne was aged 36 and Mr. Kennedy was aged 67 when they met via the internet in 2006. Ms. Thorne was living in the Middle East at the time and spoke very little English. She had no children and no assets of any value. Mr. Kennedy’s assets were worth between $18 million to $24 million and he had 3 adult children from his first marriage.
Ms. Thorne moved to Australia in February 2007 to live with Mr. Kennedy. Eleven days before their wedding, Mr. Kennedy demanded that Ms. Thorne sign a pre-nuptial Financial Agreement. Upon seeking legal advice, Ms. Thorne was advised that the Agreement was “entirely inappropriate”, however, Mr. Kennedy told Ms. Thorne that if she failed to sign the Agreement, he would call off their wedding.
Ms. Thorne’s lawyer described the provision for Ms. Thorne under the Agreement to be “piteously small” noting Mr. Kennedy’s significant wealth. The solicitor also concluded that Ms. Thorne was “under significant stress” prior to the wedding and she was concerned that Ms. Thorne was only motivated to sign the Agreement so that the wedding could proceed. As all arrangements for the wedding had been scheduled, Ms. Thorne signed the Financial Agreement 4 days before the wedding in September 2007 against her solicitor’s advice.
The Agreement contained a provision that a post-nuptial Financial Agreement would need to be signed 30 days after the pre-nuptial Financial Agreement was entered into. In November 2007, Ms. Thorne signed the second Agreement which was determined to be “substantially identical to the first”.
Under the separation provisions in the Financial Agreement, Ms. Thorne was to receive a single lump sum payment of $50,000 in the event of a separation after at least three years of marriage. In the event of Mr. Kennedy’s death, Ms. Thorne would receive a penthouse or unit worth up to $1.5M, a Mercedes Benz motor vehicle and a continuing income of $5,000 per month. Ms. Thorne’s solicitor informed her that that this was significantly less than what she would otherwise be entitled to receive.
Following the parties’ separation in August 2011, Ms. Thorne commenced proceedings in the Federal Circuit Court of Australia in April 2012 and was successful in her application for the two Financial Agreements to be set aside due to undue influence on the part of Mr. Kennedy.
Although Mr. Kennedy passed away during the course of the proceedings, an appeal by his Estate was allowed. In 2016, the Full Court of the Family Court of Australia held that the Agreements had not been impaired by duress, undue influence, or unconscionable conduct. It was further held that Mr. Kennedy had not taken advantage of Ms. Thorne as he had informed her of his significant wealth at the start of the relationship.
Ms. Thorne was granted leave in 2017 to appeal the decision of the Full Court of the High Court of Australia. In determining whether Ms. Thorne had signed the Agreements under duress, the High Court considered the following:
- 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
- Whether the parties sought independent legal advice and whether there was time to reflect on that advice.
The High Court majority recognised that Ms. Thorne was “labouring under a disadvantage.” It was found that the pressure put on Ms. Thorne by Mr. Kennedy in relation to signing the Agreements negatively affected her judgement and reduced her ability to make rational decisions. The High Court also held that Mr. Kennedy took advantage of Ms. Thorne by relocating her to Australia on the understanding that they would be married, making arrangements for the wedding and then presenting her with an Agreement and refusing to marry her unless she entered into the Agreement on his terms. It was determined that Mr. Kennedy’s behaviour amounted to undue influence and unconscionable conduct.
The implications of Thorne v Kennedy and the circumstances under which undue influence and unconscionable conduct may be found to have occurred are largely determined by the facts of the case. By entering into pre-nuptial Agreements, there is an element of “crystal ball-gazing” adopted and it is advisable where there is a significant disparity of assets favouring one party, to make provision for a fair outcome for the financially disadvantaged party.
As circumstances change throughout the course of the marriage (e.g. children of the relationship are born, there are significant changes to the asset holdings or employment status of the parties etc.) it is advisable to re-visit the terms of the Financial Agreement and contemplate entering into a Termination Agreement and a revised Financial Agreement reflective of the changed circumstances.
It is also important that both parties enter into the Agreement freely and of their own volition so as to avoid having “ink on the wedding dress”. Parties seeking to enter into a pre-nuptial Financial Agreement are encouraged to obtain legal advice and to sign it well in advance of a planned wedding.
The team at Vic Rajah Family Lawyers regularly prepare pre-nuptial and post-nuptial Financial Agreements and are able to advise clients on the merits or otherwise of entering into the Agreement.