Financial Agreements - Not the Easy Solution

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In 2000, the Family Law Act was amended to allow people to enter into financial agreements. Those agreements, in certain circumstances, prevent the Family Court from determining financial settlements following a relationship breakdown. The purpose was to reduce the workload of the Court, to enable people to control their own financial destiny and to reduce legal costs and conflict.

The High Court recently considered such an agreement in the matter of Thorne v Kennedy.

Facts

The wealthy property developer, Mr Kennedy, met Ms Thorne on an online website for potential brides.  At the insistence of Mr Kennedy they signed a prenuptial agreement 4 days before the wedding.  Ms Thorne signed the agreement despite the fact that she had independent legal advice telling her that the agreement was entirely inappropriate and that she should not sign it. Soon after the wedding she signed a post nuptial agreement in substantially the same terms despite the same legal advice. The parties separated in August 2011 at the instigation of the husband. In April 2012 the wife commenced legal proceedings which eventually resulted in the High Court decision of November 2017.

Findings

The Judge at first instance set out 6 matters which in combination had led her to the conclusion that the wife had “no choice” or was “powerless”:

  1. Her lack of financial equality with the husband;
  2. Her lack of permanent status in Australia at the time;
  3. Her reliance on the husband for all things;
  4. Her emotional connectedness to their relationship and the prospect of motherhood;
  5. Her emotional preparation for marriage; and
  6. The publicness of her upcoming marriage.

Reasons for decision

The High Court found there to have been unconscionable conduct by the husband.  For there to be such a finding requires “the innocent party to be subject to a special disadvantage which seriously affects the ability of the innocent party to make a judgement as to the innocent party’s own best interest.  The other party must also "unconscientiously take advantage of that special disadvantage". It is also generally necessary that the other party knew or ought to have known of the existence and effect of the special disadvantage.

The High Court was satisfied that the evidence established that the wife was powerless and with what she saw as no choice but to enter the agreements.  This led inevitably to the conclusion that she was subject to a special disadvantage at the time of her entering into the agreements. This special disadvantage was known to the husband and in fact in part created by him.  For example, he created the urgency with which the prenuptial agreement was required to be signed and the haste surrounding the post nuptial agreement.  He took advantage of her vulnerability to obtain agreements which on the solicitor’s uncontested assessment were entirely inappropriate and wholly inadequate.  As a consequence of the Court’s determination the financial agreements did not prevent the wife from seeking a property settlement from the Family Court.

Conclusion

Far from creating certainty and control over one’s financial affairs, the litigation surrounding these particular agreements has resulted in 3 Court cases over 5 years with potentially more litigation required to determine the wife’s financial entitlement.  The finding of unconscionable conduct was significant.  In Hoult v Hoult an agreement was not set aside merely because the agreement was not just and equitable.  In Fewster v Drake, the applicant wife was also ultimately unsuccessful in having the agreement set aside although it was clearly unfair.  However, where there is unequal bargaining power and a bad deal, there is a strong possibility of legal trouble ahead for the couple.

For more information

Section 90K Family Law Act

Hoult v Hoult [2013] FLC 93-546

Fewster v Drake [2016] FLC 93-745

Thorne v Kennedy [2017] HCA 49