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Financial Agreements: The Concrete of Legality Never Dries

Financial Agreements: The Concrete of Legality Never Dries

Financial agreements (also known as prenuptial agreements, ante-nuptial agreements or post-divorce agreements) were introduced and recognised in Australia in 2000. Many generalist lawyers are willing to draft these financial agreements; however, practising in this complex area of the law without specific expertise can be highly problematic because financial agreements are always open to challenge. Financial agreements are analogous to wills in that the concrete of legality never dries—the result being that an agreement may be contested years after it is drawn up. In the worst circumstance, legal practitioners who have drafted such an agreement may find themselves subject to a negligence claim. Therefore, it should be recognised that drafting financial agreements is a specialised area of family law that should only be undertaken by lawyers with specific expertise in this area.

*** Ground Breaking News ***

On 8 November 2017, the High Court considered the Full Court’s decision in Kennedy v Thorne [2016] and has allowed the appeal. See my new article published 14 November 2017.

In the Matter of Thorne v Kennedy

An interesting matter relating to financial agreements to be tested in the High Court of Australia is that of Thorne and Kennedy. In this matter, the parties met on an internet dating site in 2006; the future wife (Thorne) was a resident of a country in the Middle East and held no assets of substance. The future husband (Kennedy) was a resident of Australia and quite wealthy, with assets in the range of A$18 to $24 million. In July 2006, Kennedy travelled overseas to meet and spend time with Thorne. Kennedy had informed Thorne that he had two children of a previous marriage and needed to ensure that his children’s financial position was protected and that documents would need to be signed. The parties married shortly after in late September 2007. Four days before the wedding, a financial agreement was signed by the parties. Approximately two months after the marriage, a second financial agreement was signed by the parties.

Were the Agreements Fair and Equitable?

The problem with the financial agreements in this matter is that they were exceedingly one sided in favour of the husband, stating that the wife would receive A$50 000 if the marriage ended after three years, and nothing if the marriage lasts less than three years. The wife was advised the following by her lawyer: ‘It is the worst contract I have ever seen. Don’t sign’. A reasonable person would have asked whether these agreements were fair and equitable, and whether any duress had been placed on the wife to sign the agreements.

Testing the Agreements before the Courts

The parties separated four years after the marriage (June 2011). A separation declaration was signed, and in August 2011, the wife moved out of the home. In 2012, the wife filed an application in the Federal Circuit Court seeking that the financial agreements be deemed non-binding because she had been under duress to sign the agreements. The wife sought an adjustment of property of A$1.1 million, and a lump-sum spousal maintenance of A$104 000—the husband filed a response opposing the orders sought by the wife.

In 2014, the husband died from non-Hodgkin lymphoma.

In Thorne v Kennedy [2015] FCCA 484 (4 March 2015), the trial judge considered the factual matrix and noted that ‘the wife had known for some time that there would be documents to sign before the wedding. The trial judge found that at this time, the wife knew that the only option was to sign the document or there would not be a wedding’. Interestingly, on 21 September 2007, the wife’s solicitor had raised the suggestion of duress. Her Honour found that the wife had signed the agreements under duress, due to ‘duress born of inequality of bargaining power where there was no outcome available to her that was fair or reasonable’. Her Honour made orders that the financial agreements were not binding on the parties and were to be set aside.

In Kennedy v Thorne [2016] FamCAFC 189 (26 September 2016), the trustee of the husband’s estate filed an appeal in the Full Court of the Family Court. Their Honours made a judgment overturning the trial judge’s findings of duress, and upheld the validity of the financial agreements binding the parties.

In March 2017, special leave was granted to the wife to appeal the Full Court’s decision in Kennedy v Thorne [2016] to the High Court.

Applying the Law

Pursuant to s 90K(1)(b) of the Family Law Act 1975 (Cth), the court may make orders setting aside a financial agreement (or sever part of the agreement) if the court is satisfied that the agreement is void, voidable or unenforceable. Further, under s 90KA of the Act, according to the principles of law and equity, the court may determine whether there existed a valid, enforceable and effective agreement between the parties.

In its adjudication in the matter of Thorne and Kennedy, the High Court will consider the principles of law and equity for setting aside marital financial agreements, and will pay particular attention to whether there was any form of duress, undue influence or unconscionable conduct placed on Thorne to sign the agreements, and if so, whether the financial agreements should be set aside.

I believe that if Thorne had not signed the first agreement there would not have been a wedding, and if she had not signed the second agreement the marriage may have been short-lived. Could this particular pressure placed on Thorne be construed as a form of duress? I believe that the High Court may find that duress was indeed a factor that influenced Thorne in signing the agreements.

The significance of the High Court’s decision in this matter will affect all similar financial agreements.

Disclaimer: The information in this article is for general informational purposes only, it is generalist in its approach. The information presented in this article is not legal advice or a legal opinion, and it is not intended to be tailored to the specific circumstances of any particular case and should not be relied upon as such. Persons should seek professional legal advice before acting upon any of the information in this article.

By: Raymond M Earl
DipQA, DipVET, LL.B (Hons), GDipLP, MEI, M.Ed

Principal, Markus Earl Legal