STILL A GOOD IDEA TO GET A PRE-NUP?
The High Court of Australia recently delivered its landmark decision in Thorne and Kennedy  HCA 49 on 8 November 2017 whereby a 36-year old European woman (“the Wife”) successfully fought to overturn a pre-nuptial agreement which she signed on the eve of her marriage to a millionaire 67-year old property developer (“the Husband”).
Brief Relevant Facts
The Husband, a divorcee with 3 adult children, owned assets worth approximately $18-24 million whereby the Wife had no substantial assets and spoke limited English. 7 months after they met, the Wife moved to Australia to marry the Husband.
Only 4 days before the wedding, a pre-nuptial agreement (“the first agreement”) was signed at the Husband’s insistence. At the time, the Wife received independent legal advice that the pre-nup was “entirely inappropriate,” the worst her solicitor had ever seen” and that “she should not sign it.” Despite such emphatic legal advice, the Wife still signed the pre-nuptial agreement. A substantially identical post-nuptial agreement (“the second agreement”) was signed by the parties 30 days after the wedding.
Both agreements restricted her property settlement claim to a measly $50,000.00 (CPI adjusted) after 3 or more years of marriage. The agreements also included terms providing for the Wife in the event that the Husband died whilst the parties were living together.
The parties divorced in 2011 after 3 years of marriage.
The Wife commenced property settlement proceedings in the Brisbane Registry of the Federal Circuit Court of Australia seeking a property settlement claim of $1.24 million, including spousal maintenance.
During the court proceedings, the Husband died in 2014 and the Husband’s estate continued to prevent the Wife’s claim for a bigger slice of the Husband’s estate.
The primary judge’s decision
Her Honour, Judge Demack (“the primary judge”) set aside both agreements on the basis that the Wife’s consent has been negated by way of “undue influence or duress (as a form of unconscionable conduct)” and relied upon the following 6 factors in reaching this finding:
- the Wife’s lack of financial equality with the Husband;
- the Wife’s lack of permanent status in Australia at the time;
- the Wife’s reliance on the Husband for all things;
- the Wife’s emotional connectedness to their relationship and the prospect of motherhood;
- the Wife’s emotional preparation for marriage; and
- the Wife’s “publicness” of her upcoming marriage.
The primary judge’s decision was subsequently overturned by the Full Court of the Family Court of Australia (“the Full Court”) finding that the Wife’s consent had not been affected by “undue influence and duress.”
The Full Court’s decision
The Full Court held that the primary judge’s reasons were “inadequate because in the list of the six matters relied upon by the primary judge (as noted above), it was not possible to determine which of the factors were fundamental, and which were subsidiary, to the decision concerning either the first or the second agreement.”
The Full Court considered both agreements to be “fair and reasonable” because:
- the Husband had told the Wife at the outset of their relationship, and she had accepted, that his wealth was intended for his children; and
- the Wife’s interest, which was provided for in the agreements, concerned only the provision that would be made for her in the event the Husband predeceased her.
The Full Court was not satisfied that the agreements were negated by either undue influence or unconscionable conduct and overturned the primary judge’s decision.
The High Court’s decision
The Wife appealed the Full Court’s decision and was granted special leave to the High Court of Australia in March 2017, with the appeal heard in August 2017 and Judgement delivered on 8 November 2017.
The High Court upheld the primary judge’s decision to set aside the agreements and found that the agreements had been entered into by “undue influence and unconscionable conduct.”
With respect to undue influence, the High Court stated several factors:
- whether the agreement was offered on a basis that it was not subject to negotiation;
- the emotional circumstances in which the agreement was entered, 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 positions of the parties; and
- the independent legal advice that was received and whether there was time to reflect on that legal advice.
With respect to unconscionable conduct, the High Court further held that the Wife was at a “special disadvantage” when entering both agreements, particularly due to the urgency surrounding the signing of both agreements just 4 days before the wedding and 30 days after the wedding, which the Husband was aware of and took advantage of.
The High Court made the following orders:
- Appeal allowed;
- set aside the orders of the Full Court made on 26 September 2016 and, in their place, order that the appeal to the Full Court be dismissed with costs; and
- the Husband pay the Wife’s costs of the appeal to the High Court.
The case has now returned to the Federal Circuit Court awaiting judicial determination regarding the Wife’s application for property settlement and spousal maintenance.
So is it still a good idea to get a pre-nup (or post-nup)?
Despite some recent (and sensationalist) media reports, yes it is, provided the agreement is:
- fair and reasonable;
- takes into account various potential scenarios that arise during a relationship and post-separation;
- there are adequate provisions for the financially-disadvantaged party; and
- both parties each receive independent legal advice, preferably from a suitably-experienced and qualified family lawyer, as to the effect of the agreement and the associated advantages and disadvantages of entering the agreement at the time, having regard to that party’s individual circumstances (both current and future).
We consider that this decision does not change “the law” and merely reinforces the above long-standing approach, which we adopt at Emerson Family Law, pertaining to pre-nuptial and post-nuptial financial agreements.
So how can we help?
Family law is our passion and specialty.
We regularly prepare and advise on pre-nuptial and post-nuptial financial agreements (in addition to all other aspects of family law, including parenting, property settlement, spousal maintenance, child support matters etc.)
So if you require legal advice regarding your financial agreement or if you think you need one prepared, please contact us on (07) 3211 4920 to arrange an initial appointment today.