Binding Financial Agreements – Are they still relevant?
The Recent High Court decision on binding financial agreements
Are Binding Financial Agreements really binding? The ink on the wedding dress strikes again!
The question on everyone’s minds after the recent decision made by the High Court of Australia is whether or not it is worth executing a pre-nuptial agreement. In Australia, this is known as a Binding Financial Agreement.
The High Court’s judgment of Thorne v Kennedy [2017] HCA 49, delivered on 8 November 2017, has clients and lawyers alike questioning the validity of a Binding Financial Agreement.
What is the background of this case?
Both a pre and post-nuptial (before and after marriage) agreement were made between a wealthy Australian property developer and his partner. The parties met online through a website for potential brides and they were soon to be engaged. Ms Thorne was living in the Middle East and had no significant assets. Mr Kennedy was an Australian property developer with assets between $18 million and $24 million.
Very shortly after meeting, Mr Kennedy professed his interest in Ms Thorne and admitted he would like to marry her. However, Mr Kennedy made it clear that his fortune was not to be left to her, and requested that Ms Thorne sign a paper stating that his money for was his children. A pre-nuptial agreement was prepared a month prior to the wedding by a solicitor.
In basic terms, the agreement stated that upon separation, if the marriage lasted for less than three (3) years, Ms Throne would receive nothing. If they separated after three years, without children (to each other), she would receive the single lump sum of $50,000.
Approximately a week before the wedding, Ms Thorne was advised that she would need to seek independent legal advice regarding the agreement, and if she refused to sign such an agreement, the wedding would not go ahead.
The legal advice Ms Throne obtained was that she re-consider signing the agreement as it protected Mr Kennedy’s interesst and in no way her own. The legal advice stated she had significant concerns that she was only signing this agreement in fear that the wedding would otherwise be cancelled.
Despite further legal advice suggesting that she should not sign the agreement, and knowing the effects of the agreement if they were to separate, Ms Thorne signed the agreement approximately four (4) days before the wedding.
In 2011, four (4) years after the marriage, Mr Kennedy and Ms Throne separated. In 2012, Ms Thorne commenced proceedings with the Federal Circuit Court seeking the agreement be set aside and the adjustment of property be $1.1 million with spousal maintenance of $104,000. The Court made a decision in Ms Thorne’s favour to set aside the agreement that had been signed.
Mr Kennedy passed away during the proceedings but his estate filed an appeal on this decision to the Family Court. The Family Court confirmed that the agreements were valid. Ms Throne then appealed the decision to the High Court, who set aside the two Binding Financial Agreements.
Why were the agreements set aside by the Court?
Due to the matters discussed above, the Court found that there was unconscionable conduct and undue influence which resulted in Ms Thorne signing the agreement. The fact that there was minimal time between the date of marriage and the execution of the agreement contributed greatly as to why the agreement was overturned. This notion is supported by the idea that Mr Kennedy did not give Ms Thorne the ability to genuinely exercise her free choice. The second factor supporting this decision is that Ms Thorne was to receive very little upon the separation of the parties.
Can I still get a pre-nuptial agreement and will it be worth it?
After consideration of this case, it is our view that Binding Financial Agreements, including pre-nuptial agreements, are still valid and worth completing. The concept of finding a binding financial agreement to be void is not a new concept within the Family Law jurisdiction.
With such agreements, it is imperative that each party take their time to think about the contents therein, and in the event of a pre-nuptial agreement, to have it finalised well before the date of marriage.
This decision by the High Court strongly enforces the considerations parties must contemplate when entering into a binding financial agreement.
In Australia, one of the ways to protect your assets and entitlements before entering into a relationship is through a Binding Financial Agreement. If you are contemplating a pre-nuptial agreement, we recommend you obtain legal advice on the process and proposed agreement as soon as possible.
At Georgiadis Lawyers we can assist you with the proper preparation of a binding financial agreement. If you are considering a pre-nuptial agreement, contact one of our family law solicitors today on (08) 8210 5400.
Article written by Aleesha Degiglio