Does the Thorne v Kennedy decision spell the end for pre-nups?

The High Court’s recent ruling to set aside a pre-nuptial agreement has generate widespread media attention with many asking, ‘Is the pre-nup dead?”

In Thorne v Kennedy the Wife and the Husband met over the Internet and commenced an online relationship in mid-2006. The Wife was aged 36 and the Husband 67, she had limited English skills and had no significant assets. The Husband was a successful property developer with assets worth approximately $18 million. He had been married previously and shared adult children with his ex-wife.

After 6 months of “dating” the Wife travelled to Australia from Eastern Europe and moved into the husband’s penthouse apartment with him. They became engaged and a wedding was arranged 6 months later. The Husband made it clear to the Wife from the outset that he required her to sign a legal agreement (“Pre-Nup”) prior to marrying him in so that he could protect his wealth for his adult children. He advised her that the wedding would be off if she did not sign the Agreement.

Around 10 days prior to their wedding, the Wife attended at an appointment with a lawyer, arranged by the Husband, to go over the Pre-Nup prepared by his lawyers. The Agreement provided that if the parties separated after at least 3 years of marriage the Wife would receive $50,000. There were also further provisions of a testamentary nature. Four days before their wedding, the parties signed the Agreement notwithstanding the advice given to the wife by her lawyer that the Agreement was “the worst she had ever seen” and not to sign it. Three months later the Wife signed a further Agreement which revoked the first Agreement but was otherwise in exactly the same terms. The purpose of that second Agreement was to attempt to negate any potential argument as to time pressure having regard to the fact that the first Agreement was signed only four days before the wedding.

After approximately 4 years the parties separated. The Wife commenced proceedings in the Federal Circuit Court of Australia seeking to have both Agreements set aside and/or declared not to be binding and further Orders for a property settlement and spousal maintenance.

Midway through the proceedings, the Husband died and his representatives stepped in to continue his opposition to the Wife’s application.
The High Court stated that there is no precise formula to determine “unconscionable conduct” and “undue influence” and that a Trial Judge must carefully consider the relevant facts.

The warning signs from the facts in this case were:

• The wife’s lack of permanent residency in Australia.
• The wife’s financial dependency on the husband.
• The wife’s emotional dependency on the husband and her hopes of having a child.
• The wife’s emotional preparedness for marriage.

The High Court has said that all of the circumstances surrounding the entering into of the agreement must be looked at including the timing of the introduction of the idea of such an agreement, the content of the agreement, the ability of each of the parties to negotiate any amendments to the proposed agreement, the nature of their relationship and their respective financial circumstances.

The High Court has also said that there must be a reasonable degree of fairness in the agreement and has clarified the issues of undue influence and unconscionability.

There is nothing in this decision which suggests that Financial Agreements are dead, or are even very sick. They continue to be very useful and important tools in safeguarding wealth or commercial interests and in estate planning. We still strongly recommend their use and work within the legal safeguards that are (and already were) in place to protect a vulnerable party.
For our accountant friends, if your client is considering entering into a Financial Agreement, it will be helpful to bear in mind themind the above factors that arose from the High Court decision. If a Financial Agreement is challenged in Court, it may be necessary to show that the parties entered the Agreement free from pressure to enter into a deal that is obviously a very bad deal for one of the parties.

For more information on how your clients can utilisecan utilise a pre-nuptial agreement going forward please contact our Private Clients team.

This article was written by Kate Barlow, Associate – Private Clients.