Binding Financial Agreements (BFA)

Still an option following High Court decision of Thorne v Kennedy

On 8 November 2017 the High Court of Australia handed down a widely anticipated decision in Thorne v Kennedy.

Some legal commentators say it sounds the death knell for Binding Financial Agreements (pre‑nups) as both a pre‑marriage and a post‑marriage BFA were thrown out by the Court, but is this an overstatement?

The facts are:

  • Mr Kennedy was a 60 year old wealthy property developer with assets between $18 million and $24 million. He had three adult children from a previous relationship.
  • Thorne was a 36 year old woman of eastern European background but living in the Middle East with no children.
  • The couple met online in 2006 and, seven months later, she came to Australia to Marry Mr Kennedy.
  • The marriage was scheduled to take place on 30 September 2007.
  • On 19 September 2007 Mr Kennedy told Ms. Thorne that he was going to a solicitor to sign a pre-nuptial agreement and that if she did not sign it the wedding would be off.
  • Thorne sought independent legal advice from her solicitor, which took place on 20 September 2017. At that meeting she was advised not to sign the agreement, as her solicitor said it was the worst she had ever seen. If the parties separated Ms. Thorne was entitled to $50,000 indexed to CPI, if the separation occurred three years after the marriage – although she would receive a penthouse valued at $1.5 million, a Mercedes and a continued modest income if the husband died prior to any party signing a separation declaration following separation.
  • By that stage members of Ms. Thorne’s family had come to Australia for the wedding, accommodation and the reception had been booked, and the wedding dress had been made.
  • Despite the legal advice, Ms. Thorne signed the agreement four days before the wedding on 26 September 2007.
  • Shortly after the wedding, a second agreement with substantively the same conditions was signed despite Ms. Thorne receiving further legal advice not to sign it.
  • On 16 June 2011 Mr Kennedy signed a separation agreement and in April 2012 Ms. Thorne commenced proceedings to overturn the two agreements.
  • During the period of the Court proceedings Mr Kennedy died (May 2014) but his estate continued the action.

Judgement

Ms. Thorne was successful in her first appearance before a single Judge, but lost on appeal to the Full Court of the Family Court. Ms. Thorne then appealed successfully to the High Court, with the Court finding that there was undue influence and unconscionable conduct on the part of the husband.

The High Court substantively agreed with the findings of the Judge at first instance, taking into consideration the following:

  1. that the agreement was not open to negotiation;
  2. the emotional circumstances in which the agreement was entered, including a threat to end the engagement;
  3. there was no time for any careful reflection;
  4. considerations were given to the nature of the parties’ relationship with Ms. Thorne having come to Australia on a tourist visa with no friends, family or job; and
  5. the relative financial positions of the parties were extreme with Mr Kennedy having multi‑million dollar assets while Ms. Thorne had no assets.

Despite legal advice not to sign the agreement, which was not followed, it did not count against her.

We can surmise this decision was made by the High Court because Ms. Thorne was deprived of the ability to exercise any genuine free choice when deciding as to whether to sign the agreements, due to the will of Mr Kennedy, and because she relied fully on Mr Kennedy as a direct result of Mr Kennedy bringing her to Australia to marry him.

The High Court took the view that Ms. Thorne had a ‘special disadvantage’, which extended beyond a difference in bargaining power, and that Mr Kennedy had partly created this special disadvantage by creating the urgency with which the agreement, prior to marriage, was required to be signed, and the haste around signing of the post‑nuptial agreement.

Voiding a binding financial agreement

The finding that unconscionable conduct can void a BFA is not a new concept to family lawyers. While one advantage of BFAs has always been that they do not have to be fair or that the proposal can be financially advantageous to one party over the other, it is now clear from this decision that the concepts of equity and fairness are relevant to considerations of whether the agreements stand or fall.

We expect that the BFAs will still be a valid course of action for individuals that want to protect their assets in the event of a separation. To ensure its validity individuals must give careful consideration to all of the circumstances surrounding the reasons for the agreement and their relationship with the other party – along with the concepts of fairness and equity.

If you are considering entering into a BFA, please contact Joanne Cliff for more information, so that an agreement can be drafted with confidence that it will withstand the rigors of any Court action.

For more information, please contact:
Joanne Cliff

Joanne Cliff
Director
p.  +61 8 8124 1803
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this alert, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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