What you need to know about Pre-Nuptial Agreements

By Jason BellJohnston Withers, Lawyers, Adelaide.

It is comparatively unusual for Family Law cases to be finally decided in the High Court and when they are, the High Court’s decisions provide important guidance for clients and their lawyers.

The High Court Decision in Thorne v Kennedy provides important guidance about the circumstances in which pre-nuptial agreements are legally binding on the parties.

Pre-Nuptial Agreements

It has always been the case that pre-nuptial agreements can be set aside (even though all the requirements have been complied with including that the parties have obtained independent legal advice about the effect of the pre-nuptial agreement on their rights) if there has been undue influence, duress or unconscionable conduct.

What the High Court did in Thorne v Kennedy was to provide some helpful guidance as to the circumstances in which a pre-nuptial agreement can be set aside for undue influence or unconscionable conduct. The High Court did not, other than acknowledging that a pre-nuptial agreement can be set aside for duress, provide further guidance about the issue.

Thorne v Kennedy Case

The facts in Thorne v Kennedy are important. In this case the wife and husband met online when the wife was living overseas and the husband was living in Australia. The wife did not have any assets, and had limited English. The husband had significant assets.

The husband and the wife began living together in Australia in February 2007. Ten days before their planned wedding the husband presented the wife with a pre-nuptial agreement and told her that if she did not sign it the wedding would not go ahead.

The wife sought independent legal advice about the pre-nuptial agreement (as required under the Family Law Act) and her solicitor advised her in no uncertain terms, that she should not sign the pre-nuptial agreement. Despite the solicitor’s advice she signed it. After the husband and wife were married the husband presented the wife with a second agreement which repeated the terms of pre-nuptial agreement. Again the wife sought independent legal advice and again was advised not to sign it and again, the wife signed it.

After 4 years of marriage the husband and the wife separated at the behest of the husband.

In Thorne V Kennedy, the High Court listed six factors which need to be considered in deciding whether a pre-nuptial agreement should be set aside because of undue influence.

Those factors are:

  • Whether the agreement was offered on a basis that it was not subject to negotiation;
  • The emotional circumstances in which the agreement was entered into, including any explicit or implicit threat to end a marriage or to end an engagement;
  • Whether there was any time for careful reflection;
  • The nature of the parties relationship;
  • The relative financial position of the parties; and
  • The independent legal advice that was received and whether there was any time to reflect on that advice.

The High Court agreed with the Trial Judge that Mrs Thorne considered that she had no choice but to sign the agreements because in the circumstances she found herself in, she was unable to make clear, calm and rational decisions. Further the High Court also provided guidance as to when a binding financial agreement can be set aside because of one party’s unconscionable conduct.

The High Court relied on previous cases about unconscionable conduct which say that the test for whether there has been unconscionable conduct is whether an innocent party is subjected to a special disadvantage which affects the ability of that party to make a judgment in their own best interests and the other party unconscionably takes advantage of that special disadvantage.

In Thorne v Kennedy, the High Court agreed with the Trial Judge that the wife was subjected to a special disadvantage because of a number of factors including her financial vulnerability, her lack of permanent status in Australia, and her total reliance on the husband for support.

The High Court concluded that the husband took advantage of the wife’s vulnerability to obtain the agreements which were a very bad bargain from the wife’s point of view and a very good bargain from the husband’s point of view and set the agreement aside.

This meant that the wife could pursue a claim under Section 79 of the Family Law Act for a just and equitable division of her and her husband’s property.

If you are considering a prenuptial agreement, or have been asked to sign one, please get legal advice to ensure you are protected.

Contact the author directly by email or by telephone.

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