Alert – Financial Agreements set aside by landmark decision of High Court

The High Court of Australia handed down its landmark decision this week in the eagerly awaited decision of Thorne v Kennedy1 in which it unanimously set aside the financial agreements signed before and after the parties’ wedding (prenup and postnup).   A majority of the judges found that the wife signed the agreement because of “undue influence” and agreed that the wife was “powerless” and had “no choice” to act in any way other than to sign the financial agreement.

In this case, the parties had first met online via a website for potential brides.  He was 67.  She was 36.  She was of eastern European background and living overseas.  The husband, a wealthy Australian property developer, was worth about $18 million, and had adult children from his first marriage.  At the very start of the relationship, the husband said to the wife-to-be that if they were to wed, she would need to “sign a paper” and his money was for his children.  Eleven days prior to the wedding, he said that if she did not sign the financial agreement the wedding would be called off.  At the time, the wife-to-be was in Australia and some of her relatives had travelled to Australia for the ceremony. She signed the financial agreement four days prior to the wedding.

The financial agreement provided for the wife to receive a total payment of $50,000 adjusted for inflation in the event of separation after at least three years of marriage.  In the event of the husband’s death in the absence of separation, the wife was to receive a penthouse worth $1.5 million and a Mercedes motor vehicle and continuing income.

The parties separated about four and a half years later.  They had no children.  The wife sought relief from the Federal Circuit Court of Australia seeking an order that the financial agreements be set aside and that she receive $1.1 million and lump sum spousal maintenance of $104,000.

The trial judge found in the wife’s favour and set aside the financial agreements.  The trial judge found that there had been “undue influence and duress” on the husband’s part.  The husband’s adult children (the husband had since died and his adult children represented his estate) appealed the decision and the Full Court of the Family Court of Australia found that there was no duress and that the financial agreements were in fact binding.  The wife appealed to the High Court of Australia.

The High Court did not agree with the decision for the Full Court of the Family Court of Australia which had upheld the financial agreements as binding.  The High court found the financial agreements should be set aside for “unconscionable conduct” and “undue influence”.

Lavan comment 

Many had hoped the decision of the High Court would provide clarity surrounding the role of financial agreements.  Unfortunately, the decision has created a whole new level of uncertainty.

In considering whether or not a financial agreement can be set aside, careful consideration must be given to factors such as:

  • whether or not the agreement was “negotiable” or “non-negotiable”;
  • whether or not any “threats” or “ultimatums” were made about ending the relationship or “calling the wedding off” if an agreement was not signed;
  • whether or not each party had sufficient time to consider the agreement and also sufficient time for a party to consider the legal advice that they were given prior to signing; and
  • the circumstances of each party, in particular the “disadvantaged party” and the terms of the agreement.

The law makes provision for these financial agreements to be entered into. However, in light of the recent landmark decision of the High Court, an even greater degree of caution is required in relation to the preparation of these financial agreements and the circumstances in which these financial agreements are entered into.

To hear Framy’s discussion with Ross Greenwood from 2GB, which aired live on radio in Sydney, Melbourne, Canberra and Brisbane about the implications of the High Court’s decision, please click here.