Pre-nuptial agreements: So long as they are fair, they are as viable as ever

Yesterday, the High Court of Australia released its decision in Thorne and Kennedy [2017] HCA 49, being the first decision of the High Court of Australia in relation to Financial Agreements, more commonly referred to as pre-nuptial and post-nuptial agreements. In Thorne and Kennedy, the High Court of Australia upheld the decision of the primary Judge to set aside a pre-nuptial agreement and post-nuptial agreement because those agreements were entered into through undue influence and unconscionable conduct.

The decision of the High Court has not changed the law in relation to the enforceability of pre-nuptial and post-nuptial agreements in any substantial way. However, it does highlight the importance of ensuring the terms of the agreement are fair and reasonable, and to be mindful of the surrounding circumstances when entering the agreement.

The case

In Thorne and Kennedy, a pre-nuptial agreement was signed (at the insistence of Mr Kennedy) only four days before the parties’ wedding. Ms Thorne had received “emphatic independent legal advice that the agreement was 'entirely inappropriate' and that Ms Thorne should not sign it”. A substantially identical post-nuptial agreement was signed shortly afterwards which was held to be a continuation of the first agreement. The agreement essentially provided that Ms Thorne would receive nothing if the parties separated within three years of marriage, and a lump sum of $50,000 (CPI adjusted) would be awarded if the parties separated after three years of marriage. The agreement also contained terms providing for Ms Thorne in the event that Mr Kennedy died while the parties where living together.

The primary Judge found that Ms Thorne’s circumstances led her to believe that she had no choice, and was powerless to act in any way other than to sign the pre-nuptial agreement. The six factors the primary judge relied on to reach this conclusion were as follows:

1. the lack of financial equality between the parties;
2. Ms Thorne’s lack of permanent status in Australia at the time;
3. Ms Thorne’s reliance on Mr Kennedy for all things;
4. Ms Thorne’s emotional connectedness to their relationship and the prospect of motherhood;
5. Ms Thorne’s emotional preparation for marriage; and
6. the publicness of the upcoming marriage.

The agreements were set aside by the primary Judge and then that decision was overturned by the Full Court of the Family Court of Australia.  The case then proceeded to the High Court of Australia.

The High Court of Australia’s decision

The High Court upheld the primary Judge’s decision to set aside the agreements, finding that the agreements had been entered into by undue influence and unconscionable conduct.  

In finding that the agreements were entered into by undue influence, the High Court of Australia held that it was correct for the primary judge to consider the unfair and unreasonable terms of the agreements. The High Court of Australia made the following comments about the consideration to be given to the terms of an agreement which are of particular interest:

“Of course, the nature of agreements of this type means that their terms will usually be more favourable, and sometimes much more favourable, for one party. However, despite the usual financial imbalance in agreements of that nature, it can be an indicium of undue influence if a pre-nuptial or post-nuptial agreement is signed despite being known to be grossly unreasonable even for agreements of this nature.”

The High Court of Australia also provided helpful guidance on some of the factors that may have prominence to a finding of undue influence in the context of pre-nuptial and post-nuptial agreements, being:

1. whether the agreement was offered on a basis that it was not subject to negotiation;
2. the emotional circumstances in which the agreement was entered, including any explicit or implicit threat to end a marriage or to end an engagement;
3. whether there was any time for careful reflection;
4. the nature of the parties' relationship;
5. the relative financial positions of the parties; and
6. 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 of Australia 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, which Mr Kennedy was aware of and took advantage of.

What does this mean for the validity of pre-nuptial agreements?

The High Court has adopted an orthodox approach in its judgement and there were no surprises from our point of view. The High Court has honed the law in respect of undue influence, unconscionable conduct and duress as it applies to relationship agreements. There are no real substantive changes to the law around financial agreements emanating from the decision, other than perhaps to highlight the need to ensure the agreement is reasonable and fair.

At HopgoodGanim, we encourage parties entering into financial agreements to ensure that additional, reasonable provisions are made for the financially disadvantaged party, and take into account a range of potential scenarios that may arise during a relationship. The High Court decision reinforces this approach.

The decision also highlights the need for detailed and targeted legal advice to be provided to each party entering the agreement. There is a need to realistically assess the circumstances of the parties entering the agreement to ensure they receive appropriate advice as to the effect of the agreement and advantages and disadvantages of entering the agreement at the time. If the agreement is the “worst agreement ever” or it is “entirely inappropriate” then the party needs to be told so.

The preparation of pre-nuptial and post-nuptial agreements is a regular and specialised part of our family law practice.  Following the High Court judgement today, it will be business as usual for us in the preparation of these agreements for our clients.

For more information or discussion, please contact HopgoodGanim Lawyer’s Family Law team.