Financial agreements - is my agreement binding?
On 8 November 2017 the High Court of Australia handed down a decision in the case of Thorne v Kennedy. The High Court set aside two financial agreements for unconscionable conduct and undue influence, which has caused some unease amongst the legal fraternity. What does this really mean though?
The facts surrounding this case are this: Ms Thorne, a 36 year old eastern European woman who was living in the Middle East with minimal assets met Mr Kennedy a 67 year old wealthy property developer online in 2006. Mr Kennedy’s net worth was estimated between $18 - $24 million. He was divorced with 3 adult children.
Mr Kennedy travelled to meet Ms Thorne shortly after he met her online, but insisted that she would have to sign some papers if they were to marry, as his money was for his children.
In February 2007, Ms Thorne moved to Australia and moved in with Mr Kennedy with the intention of marrying. The wedding date was set for 30 September 2007. About 10 days before the wedding, Mr Kennedy took Ms Thorne to see his lawyer and he told her that she was to sign a ‘prenuptial agreement’ and if she didn’t he would not marry her. At this stage, Ms Thorne’s family had arrived in Australia for the weeding and all wedding arrangements had been booked.
On 20 September 2007, Mr Kennedy took Ms Thorne to an independent lawyer for independent legal advice about the agreement. It was a term of the agreement, that in the event that the parties separated after at least 3 years of marriage, Ms Thorne was to receive a payment of $50,000.00 plus CPI and she was thereafter prevented from seeking a property settlement and spousal maintenance under the Family Law Act. The independent lawyer advised Ms Thorne not to sign the agreement, however despite this advice, Ms Thorne insisted on signing the agreement as if she didn’t she would have no visa, no money and no home. Some minor amendments were made to the agreement, at the request of the independent lawyer. The agreement was signed by Ms Thorne on 26 September 2007, 4 days before the wedding and against the advice of the independent lawyer. The couple was married on 30 September 2007.
Under the first agreement, the parties were required to sign a further agreement (the second agreement) in almost the same terms after the wedding. The independent lawyer again advised Ms Thorne not to sign the agreement, however despite this advice, Ms Thorne signed the agreement on 5 November 2007.
The parties separated on 16 June 2011, almost 4 years after marriage and under the second agreement, Ms Thorne was to receive $50,000.00. Ms Thorne commenced proceedings in April 2012 seeking for the agreement to be set aside and for a property settlement in the sum of $1.1 million plus spousal maintenance of $104,000.00. A trial commenced in May 2014, however Mr Kennedy died throughout the trial and his executors continued with the case.
The trial judge found that the agreement should be set aside and it was a case were Ms Thorne was subject to undue influence. The trial judge found that Ms Thorne had “signed the Agreements under duress borne of inequality of bargaining power where there was no outcome to her that was fair and reasonable.”
On 26 September 2016 the Full Court of the Family Court allowed an appeal by Mr Kennedy’s estate. The Full Court found that both agreements were binding on the parties and held that there has not been duress, undue influence or unconscionable conduct by the husband.
On 10 March 2017 Ms Thorne was granted special leave of the High Court to appeal the decision of the Full Court on the Family Court.
The High Court’s decision:
In November 2017 the High Court unanimously allowed the appeal on the basis that the agreements should be set aside for unconscionable conduct and that the trial judge’s reasons were not inadequate.
Justice Nettle (while agreeing with the majority) explained that it really cannot be expected that a person in Ms Thorne’s position would be persuaded to abandon her life abroad and travel halfway across the world had she been made aware of the extent of the terms of the agreement at the outset of the relationship. So much so that by the time Ms Thorne was fully made aware of the terms of the agreement she had found herself in a situation which would have so seriously affected her state of mind and rendered her incapable of deciding which was in her best interests (at paragraph 75 of Nettle J).
What does this mean for you?
Ultimately, this decision shows how an inequality in ‘bargaining power’ can affect whether a financial agreement is binding, despite a party having received independent legal advice. This case serves as a reminder that not only should the financial agreement meet the requirements under the Family Law Act but for the terms of the agreement to provide a fair outcome for the less wealthy party.
A binding financial agreement can help people to resolve how their financial matters during their relationship or in the event of a relationship breakdown.
Contact Chelsea Schaefer to discuss your family law needs.