New Cases – Binding Financial Agreements

Binding Financial Agreements, or what some people call ‘pre-nups’, can be a useful tool for parties who wish to pre-determine how their assets should be treated in the event of relationship breakdown.

However, these Agreements are not without risks and should be drafted carefully and not entered into without proper consideration of all the relevant issues.

Thorne v Kennedy [2017] HCA 49

The High Court was recently asked to decide, on behalf of an appeal by the wife, whether two Binding Financial Agreements (or ‘BFAs’) should stand, in the matter of Thorne v Kennedy.

The Husband (or, in the event, his estate, who continued his matter following his death) sought to enforce this document as against the Wife, as it had been signed by the Wife and she had sought legal advice prior to signing and provided a solicitor’s certificate evidencing this advice.

The Wife argued she signed this document because she felt she had no other option and argued it should be set aside because of the circumstances in which she signed it.

The court considered relevant factors to the decision on whether the BFA should be upheld included:
  • The Husband’s significant assets – over $18 million – in comparison to the Wife’s – virtually zero (relative financial positions overwhelmingly in Husband’s favour)
  • The nature of their relationship the Wife had moved from overseas to marry and live with the Husband; the Wife was 36 and the Husband was 67
  • The Husband told the Wife, after she had already moved and after her family had arrived from overseas for the wedding, that the wedding was ‘off’ if the Wife didn’t sign the Agreement
  • The Wife did not have much time to consider the Agreement before she signed
  • The Wife received a ‘piteously small’ amount - $50,000 – if they separated after 3 years (without children)
  • The Wife was under significant stress and had relevant emotional concerns at the time the BFA was put forward
  • The circumstances surrounding the independent advice sought by the Wife and fact Wife was not given opportunity to negotiate the terms of the Agreement (solely drawn in the Husband’s interests) and had to make a decision in a short period of time, which was either sign or relinquish marriage opportunity.

The Court held that the BFAs (there were two, the second with small amendments), could not stand and would not be enforceable as against the Wife.

The Court held the Husband had engaged in ‘unconscionable conduct’ which is to say the actions of the Husband in having the Agreement signed by the Wife, in the circumstances, voided the Agreement and made it unenforceable.

The Wife was found to be under a ‘special disadvantage’ in terms of this Agreement, because of a number of factors, which included her inferior financial position, her very recent arrival in Australia from overseas, her obligations to her family who came over for the wedding, and her resultant lack of options when told to ‘sign or the marriage is off’.

What does this mean for parties negotiating BFAs?

Where two parties are in such different financial positions, this case emphasises how important it is to proceed with caution when drafting BFAs.

This includes ensuring both parties have time to negotiate the terms and get comprehensive legal advice. It also suggests the ‘timing’ of such negotiations are relevant, so that negotiating terms close to a wedding is not without significant risk.

The case also underlines the willingness of a court to consider the ‘fairness’ of an Agreement, if all other factors point to one party being at a serious disadvantage to the other.

In terms of negotiations, the case suggests that where one party holds significantly more in the way of financial resources, if you are acting in that party’s interests, a safer approach is to consider drafting slightly more generous terms than originally imagined by the resource-rich party. This is because a better outcome is for a slightly more generous but enforceable Agreement, rather than a harsher but unenforceable Agreement, should the BFA be challenged by a party at a later date.

We welcome your enquiries in relation to drafting a Binding Financial Agreement and are happy to provide an initial conference, at no charge, that you may consider your various options upon marriage, de facto cohabitation or separation.

By Natalie Eldridge
Prompt Legal Services