Finding the Balance in Prenuptial Agreements: How ‘Binding’ Are They?

The Family Law Act 1975 allows the parties to a marriage or de facto relationship to enter a binding legal agreement about the financial arrangements should the relationship break down. Financial agreements can be executed at any time before, during or following the breakdown of a relationship. If made before marriage, the agreements are sometimes known colloquially as a prenuptial agreement or just prenup. These agreements are becoming increasingly popular and no longer just for celebrities or the mega rich intent on protecting their wealth in the event of a relationship breakdown.

On the face of it, these agreements would seem straightforward. An agreement is prepared and signed after the parties have received independent legal advice concerning its advantages and disadvantages. However, things can become complicated.  What happens, for example, if one partner is unable to speak or understand much English? What then is the usefulness of the advice received? In this article, we explore these issues how binding a prenuptial agreement truly is.

Can a ‘binding’ financial agreement ever be unbound?

Financial agreements can sometimes be set aside:

• if the agreement is obtained by fraud and one party is deceived and tricked into signing;
• where the circumstances have changed materially since signing involving a child with the result that the parent or child will suffer hardship if the agreement is not set aside;
• if, at the time of signing, a party behaved in an unconscionable manner.

In Thorne v Kennedy (2017), for example, the High Court ruled that Ms Thorne had been left with a ‘piteously small’ lump sum based on the financial agreement. The wealthy Mr Thorne had taken advantage of his wife’s vulnerability. The agreement was entered into as a result of ‘undue influence, illegitimate pressure and unconscionable conduct’ by him, and consequently, it was deemed unenforceable and set aside.

There is no precise legal definition of unconscionable but encompasses harsh, unfair or oppressive conduct, including consideration of where a stronger party exploits a ‘special disadvantage’ of the other party.

Recent illustrative case: Beroni & Corelli (2021)

Facts

The two parties migrated to Australia at different times and from different countries. He came to Australia in 1952, while she arrived on a student visa in 2009. They started a relationship in 2010 though they had difficulty understanding each other at first as there was no common language. He was considerably older than her. The husband-to-be asked his future wife to sign a prenuptial financial agreement. She signed it in March 2011.

Written in English and not translated, the agreement provided that the wife could not make any claim on assets that her husband brought into the relationship. However, assets acquired during the relationship would be capable of division. Her solicitor spoke English only, and their consultation only lasted 30 minutes.

The relationship ended in May 2016. Subsequently, the wife commenced proceedings in the Family Court, seeking orders to set aside the financial agreement.  

Decisions

The primary judge in Corelli & Beroni (2019) found in favour of the wife. The Court decided that the wife was not proficient in English when she signed the financial agreement and did not have any real understanding of it.

She was at a disadvantage in dealing with the husband in several ways. For example, she relied on him for accommodation and financial security. And remaining in the relationship was the only way she could acquire residence in Australia and obtain a permanent visa.

The Court found that the husband must have known that the terms were stacked in his favour. There was an inherent power imbalance that he did not attempt to address. The financial agreement was not signed of her own free will and should be set aside.

The husband appealed. He contended that his wife had the essential nature of the financial agreement explained to her and had rejected her solicitor’s advice not to sign off her own accord. The husband argued that as independent legal advice had been given, a claim for undue influence should have failed.

The wife’s representatives contended that it is one thing for the wife to understand the effect of the financial agreement, but it is a different matter for the wife to have sufficient understanding and knowledge to protect her own interests adequately.

The Court found that the wife signing the agreement against the advice of her solicitor may be an indication of undue influence and that the wife did not “have any real understanding ... as to the sort of value of claim which she would be giving up”. As a result, the husband’s appeal was dismissed, and he was ordered to pay the wife’s costs of $82,275.

The effect of a financial agreement

The husband lost his case because of undue influence and his unconscionable conduct.

The case outlined highlights the importance of ensuring that parties to a financial agreement are on a tolerably equal footing when entering into the agreement. Even though the formalities under the Family Law Act were observed, more may be required.  Both parties need to be fully informed before entering the agreement, particularly if one party is at a disadvantage, such as struggling without a complete understanding of English. In such cases, the agreement should be translated and an interpreter present to assist with questions.

In all cases, the advice given must be detailed as to the nature and effect of the proposed financial agreement, including its advantages and disadvantages. It is, for example, not enough simply to advise that the agreement is unfair and should not be signed.

Contact our Family Law Solicitors in Sydney, NSW

If you need advice on signing a financial agreement or seek advice or representation in any family law matter, please contact the family law specialists at Szabo & Associates Solicitors on 02 9281 5088 or complete the online contact form.