Prenuptial Agreements are a form of a Binding Financial Agreement (BFA) covered under section 90B in the Family Law Act. A ‘prenup’ is commonly used by parties wanting to enter into a formal agreement prior to marriage regarding financial arrangements, should separation occur in the future. A prenuptial agreement is a formal document drafted by lawyers. Each party is required to receive independent legal advice prior to its execution.
Prenuptial agreements set out what each party is entitled to, at separation. The benefit of entering into a prenuptial agreement is that parties know their precise position should separation occur. This may be preferable to having to work out a settlement post-separation based on what is just and equitable.
Thorne v Kennedy
The lead case on prenuptial agreements is Thorne v Kennedy, which was heard and decided by the High Court in 2017. This case has affected not only the validity of prenuptial agreements, but that of all BFAs under the Family Law Act. The main issue in dispute in Thorne v Kennedy was unconscionable conduct.
The facts in Thorne v Kennedy:
- The wife was 36 years old and the husband was 67.
- The parties met online in mid-2006 while the wife was still residing in Greece. She spoke little English.
- The husband was an Australian property developer and held assets in excess of $18 million.
- The husband promised the wife that she would be treated like a queen.
- The wife received the first prenuptial agreement only 10 days before the date of the wedding, and it was only executed 4 days before the wedding.
- The prenup included a proviso that she would be entitled to $50,000 plus CPI after separation, if the parties were married for a minimum of 3 years.
- The wife’s lawyer advised her that she should not sign the prenuptial agreement.
- The parties separated 4 years after marriage.
Decisions made prior to the High Court:
- In March 2015, the trial judge found the prenuptial agreement not binding and was set aside due to the wife being “powerless”;
- In September 2016, the Full Court of the Family Court allowed the husband’s appeal and determined that the agreements were fair and reasonable;
- In March 2017, the High Court allowed the wife’s appeal on the basis that the Full Court failed to find the financial agreements not binding. It was argued and accepted by the High Court, that the agreements were void due to undue influence and unconscionable conduct.
Undue Influence and Unconscionable Conduct
For a Binding Financial Agreement to be valid, parties must enter into the agreement freely and not because of undue influence or unconscionable conduct.
In Thorne v Kennedy, the trial judge found that the pressure placed on the wife by the husband amounted to undue influence and unconscionable conduct due to the wife’s lack of bargaining power at the time of entering into the Agreement. However, the Full Court overturned this finding, stating that the agreements were fair and reasonable as the wife understood that the husband had the intention of protecting his assets for his children.
The High Court was of the view that the agreement was “grossly unreasonable” and agreed with the trial judge regarding the husband’s undue influence.
Section 90G(1A) of The Act includes provisions on how a party can enter into a valid agreement that is essentially a ‘bad bargain’. An agreement may be upheld, notwithstanding it is a bad bargain, should the court be satisfied that it would be unjust and unequitable if the agreement was not found to be binding on the parties to the agreement. This provision was not explored in Thorne v Kennedy, and it still remains unclear when a bad bargain will prevail over the principle that a property division should be just and equitable.
What We Can Learn From This Case:
- Receiving independent legal advice does not necessarily prevent a party from getting a bad bargain;
- The provision of legal advice will be taken into consideration when determining whether a party was under duress when executing an agreement;
- Even where a second agreement has been entered into, a court may still maintain the view that a party entered into the agreements due to undue influence and therefore they are invalid;
- Be wary of ‘ink on the dress/tuxedo’ agreements. In this case, the parties executed their BFA 10 days before the wedding, and the husband was waiting impatiently downstairs of the wife’s lawyer’s office waiting for her to execute the agreement.
In summary, parties intending to enter into a prenuptial agreement should not leave it until the last minute to obtain independent legal advice. Parties should allow sufficient time between obtaining independent legal advice and their wedding date, to avoid a potential ink on the dress/tuxedo agreement. A prenuptial agreement is not an agreement to rush into. This is important not only for prenuptial agreements but for all BFAs. Parties and legal practitioners must remember that a BFA does not only require family law considerations but must also be binding under contract law.
By Jona Villanueva, Solicitor