Can Prenuptial Agreements Withstand Pressure? Landmark Case Thorne v Kennedy Suggests not

Background

A prenuptial agreement (“prenup”) is a form of Binding Financial Agreement (BFA) setting out how the assets and liabilities would be divided if a relationship, marriage or de facto, breaks down. They can be made before or during the relationship and normally avoid the Family Court from becoming involved if the relationship falters.

Prenuptial agreements can be appropriate, for example, where one person has much more property than the other at the commencement of the relationship, or entering a further relationship where there are children of the earlier relationship to be considered and protected. Alternatively, the parties may just wish to ensure the terms of any potential property division are agreed and will not end in court.

To be binding, they need to meet the formal requirements of the Family Law Act 1975 (Cth), which, among others, include being signed. Before signing, each party must have obtained independent legal advice and have been provided with a signed statement from the adviser to this effect.

Key issues

The Family Court has discretion to set aside the provisions of a seemingly valid BFA in certain circumstances, such as if it was obtained by fraud (including non-disclosure of anything material) or a party to the agreement has engaged in “unconscionable conduct” while entering the agreement.

In Parkes & Parkes (2014), for example, the Federal Circuit Court judge found that the wife’s consent was not independent and voluntary because it was overborne (subjugated) and she was subject to duress and undue influence, without distinguishing between the two concepts. He also found that the requirements of unconscionable conduct were satisfied. The wife “says she considered that she had no choice. She was clearly in a position of special disadvantage and the husband knew so. The prenuptial agreement was not to the wife’s advantage. It gave her no rights at all in the future to any of the husband’s property. She knew that it was because Mr C told her so. Nevertheless, she signed it because she considered she had no choice”.

The High Court recently considered this issue in a landmark ruling, Thorne v Kennedy. The decision had been eagerly awaited as the High Court rarely deliberates on family law issues. It was expected to determine the extent of the legal and equitable principles of BFAs regarding duress, undue influence and unconscionable conduct and, as such, set to become an important precedent. The High Court upheld a wife’s appeal, reinstating the decision of the judge at first instance and setting aside the ruling of the Full Court of the Family Court, holding that the BFA was voidable for both undue influence and unconscionable conduct.

Ms Thorne (a pseudonym) was a relatively young woman from Eastern Europe who met Mr Kennedy on the internet. He was 67 years old, a property developer, with a net worth between $18m and $25m, and three adult children. She moved to Australia, but four days before the wedding Mr Kennedy threatened to call off the wedding if she did not sign a prenuptial agreement. She signed despite independent legal advice that it was “entirely inappropriate”. She signed another agreement 30 days later, which she was also advised not to sign. The agreements limited her claim to $50,000 after three years of marriage. They had married in 2007 and separated in 2011. Ms Thorne took her ex-husband to court in 2012 seeking to overturn the agreements. Mr Kennedy died in 2014 but litigation continued.

The primary judge noted Ms Thorne had left everything behind in moving to Australia and that “if the relationship ended she would have nothing, no job, no visa, no home, no place, no community”. The High Court found the husband had “created the urgency with which the pre-nuptial agreement was required to be signed and the haste surrounding the post-nuptial agreement and the advice upon it” taking “advantage of Ms Thorne’s vulnerability”. Interestingly, the Court set the agreement aside even though the wife had signed a document knowing it was against her best interests to do so following clear legal advice to that effect. “The fact that she was willing to sign both agreements ... serves to underscore the extent of the special disadvantage under which Ms Thorne laboured”.

As to the difficult definitional issues, the High Court noted that duress focuses on the effect of pressure on the person seeking to set aside an agreement. It does not require the person’s will to be overborne or free will lost. On undue influence, the Court noted the difficulty in defining the term and its overlap with duress. It can be proved by direct evidence of the circumstances under which the agreement was signed and that pressure can affect a person’s exercise of free choice. Unconscionable conduct requires an innocent person to be subject to a “special disadvantage”, impacting their ability to make a judgment in their best interest, and of which the other party takes advantage.

What does it mean?

Thorne v Kennedy does not mean that prenuptial agreements no longer have a role, although issues concerning “illegitimate pressure” are clearly important. Some existing BFAs may be difficult to enforce in the future, particularly where the two parties do not have equal bargaining power. If you are considering a prenup, or if you think the one in place may no longer reflect the current position, specialist advice is appropriate.

Each party considering a prenup should have independent legal advice from a lawyer in the Australian jurisdiction. The agreement should be in writing, drafted and signed in the presence of a lawyer and contain a complete disclosure of assets, liabilities, income and expenditure.

If a relationship breaks down and there is no prenuptial agreement, it is important to obtain legal advice regarding the distribution of your property and your rights and responsibilities. A negotiated settlement is usually preferable to going to court.

While Thorne was heard in a family law context, there may be ramifications to general commercial law.

Contact our Family Law Solicitors in Surry Hills, Sydney

Szabo & Associates, Solicitors, can provide you with expert advice on the wide range of family law matters including challenging prenuptial agreements, divorce and separation, property settlements and spousal maintenance. Please call us on (02) 9281-5088 or our online contact form.