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Binding Financial Agreements - Pre Nuptial Agreements – Are they bulletproof?


In the recent decision of Thorne v Kennedy in November 2017 the High Court of Australia heard an Appeal from a decision of the Full Court of the Family Court of Australia.  The Full Court had heard an Appeal from a Single Judge of the Family Court.  The High Court decision in November 2017 will have a significant effect on the usefulness of Pre-Nuptial Agreements and Binding Financial Agreements entered into during a marriage or a de facto relationship.

The Family Law Act 1975 provides that parties to a marriage or a de facto relationship can enter into a Binding Financial Agreement.  Binding Financial Agreements can be entered into before marriage or before commencement of a de facto relationship, during the course of a marriage or during the course of a de facto relationship or after separation.

The Act prescribes certain requirements for the Agreements to be binding under the Family Law Act.

The Thorne case involved consideration of whether or not a Pre-Nuptial Agreement entered into before marriage and then a second agreement entered into during the course of the marriage in similar terms should be set aside.

Section 90K of the Family Law Act (and Section 90UM applying to de facto relationships) sets out the circumstances in which the Court may set aside a Binding Financial Agreement including a Pre-Nuptial Agreement.

As you would expect the Section does not set out all the factual matters which would lead to a finding of an event which fell within the requirements referred to in Section 90K (or Section 90UM).

Extreme care is required in relation to the preparation of any Binding Financial Agreement and the circumstances surrounding the execution of those documents.  Under Section 90K the Court in order to set aside a Financial Agreement needs to be satisfied that:

(1)       The Agreement was obtained by fraud (including non-disclosure of a material matter); or

(2)       A party to the Agreement entered into the Agreement for the various or one of a number of purposes which include:

(i)        defrauding a creditor;

(ii)       defrauding another person who was in the de facto relationship or a spouse of one the parties to the relationship; or

(iii)      defrauding a person who is making a claim under the Family Law Act against a party to the Agreement.

(3)       The Agreement is voidable or unenforceable; or

(4)       Circumstances have arisen since the Agreement was made and it is impractical for the Agreement or a part of the Agreement to be carried out; or

(5)       Since the making of the Agreement there has been a material change in the circumstances being circumstances relating to the care, welfare and development of a child or party to the Agreement and a party or the child will suffer hardship if the Court does not set the Agreement aside; or

(6)       A party to the Agreement engaged in unconscionable conduct; or

(7)       Matters relating to superannuation.

There are other matters required for a Binding Financial Agreement to be enforceable and failure to comply may result in the Binding Financial Agreement being unenforceable.

The case of Thorne v Kennedy considered the circumstances relating to the Agreement.  It is clear that but for the Pre-Nuptial Agreement based on the facts and circumstances of the case the outcome for the wife would be more favourable to her if the Pre-Nuptial Agreement was unenforceable.

Ms Thorne came to Australia from overseas leaving behind her life and her minimal possessions.  The situation was that if the relationship with Mr Kennedy were to end she would be left with no assets, no home, no Visa and no support.  Also the wife was advised very early in the relationship that if the Financial Agreement when produced was not signed by Ms Thorne there would be no marriage.

Prior to entering into the Pre-Nuptial Agreement Ms Thorne sought legal advice and that legal advice was that the Agreement was not fair and should not be signed.  In spite of that advice Ms Thorne signed the Agreement.

There is no suggestion that the Solicitor for the wife’s advice was incorrect or that the solicitor was negligent.

Ms Thorne’s case dealt with the concepts of unconscionable conduct, duress and undue influence.

At first instance Judge Demarck found that the Agreements were voidable for duress, undue influence and/or unconscionable conduct.  The original Court set the Agreements aside.

Mr Kennedy appealed to the Full Court of the Family Court of Australia.  The Full Court of the Family Court of Australia upheld the appeal.  There were grounds of appeal which related to duress (ground 6, ground 7, ground 11) and also procedural fairness in relation to a cost order (ground12) which were successful.

The Full Court of the Family Court declared that the Second Agreement, namely the one that was signed after marriage was legally binding on the parties.

Many issues arise as to the enforceability of the Binding Financial Agreements particularly Pre-Nuptial Agreements and Financial Agreements during the marriage or a de facto relationship.

If a Court finds that the statement to the effect “take it or leave it” is duress, unconscionable or undue influence and there is a real possibility that Pre-Nuptial Agreements or Financial Agreements signed during the marriage before separation following such an ultimatum may be held to be enforceable.

Where one party is given a “take it or leave it” proposal one needs to consider the relationship carefully and the consequences of either signing a document (which may not be enforceable) or not signing a document.

In the event that you have signed a Pre-Nuptial or Binding Financial Agreement before marriage, before a de facto relationship or during a de facto relationship or during marriage there are serious considerations as to the effect of that document to be considered and further one needs to give very serious consideration as to the course to be adopted in any litigation following separation.

We advise in relation to all matters concerning family law including the enforceability of Binding Financial Agreements.  If you are concerned as to the status of any such agreement please telephone Richard Watson or his Personal Assistant Shereen DaGloria to obtain advice in relation to the position that you find yourself in.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.

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