Binding Financial Agreements; are ‘Pre-nups’ still useful following the decision in Thorne & Kennedy?

Thorne & Kennedy [2017] HCA 49 is a decision of the High Court of Australia whereby a Binding Financial Agreement, or ‘pre-nup’, was set aside.

So what good are pre-nups if they can be set aside?

To answer this question, it is important to understand the background to Thorne & Kennedy.

In this case, the parties met on the internet in 2006. Ms Thorne was 36 years old, with no substantial assets, and at the time lived in the Middle East. By contrast, Mr Kennedy was 67 years old and held assets with a value of approximately $18 million.

In February 2007 Ms Thorne moved to Australia, and on 30 September 2007 the parties were married.

On 19 September 2007, Mr Kennedy informed his fiancé that they were going to see a lawyer to sign an agreement. Mr Kennedy informed his fiancé that if she did not sign the agreement, the wedding would not go ahead. Against independent legal advice, Ms Thorne signed the ‘pre-nuptial’ agreement pursuant to section 90B of the Family Law Act 1975 on 26 September; some four days prior to the wedding.

Shortly after the marriage the parties entered into a ‘post-nuptial’ agreement pursuant to section 90C of the Family Law Act. Ms Thorne again signed against independent legal advice.

The Agreements gave the wife a lump sum of $50,000 (CPI indexed) in the event of the parties’ relationship breakdown if they had been married for a minimum of three years.

After four years of marriage, the parties separated and Ms Thorne applied to the Federal Circuit Court for the agreements to be set aside. Ms Thorne was successful at first instance, with the primary judge setting aside both agreements for unconscionable conduct and undue influence.

The decision of the primary judge was based on a number of factors, including:

  1. Ms Thorne had no permanent status in Australia at the time;
  2. Ms Thorne did not have financial equality with Mr Kennedy;
  3. Ms Thorne was entirely financially dependent on Mr Kennedy;
  4. Ms Thorne’s emotional preparation for the marriage;
  5. Ms Thorne’s emotional commitment to the relationship and the prospect of having a child; and
  6. The ‘publicness’ of the marriage.

Mr Kennedy died during the proceedings and on his behalf his estate appealed the primary judge’s decision. This application to uphold the agreements was allowed.

Ms Thorne appealed successfully to the High Court of Australia, with the High Court unanimously restoring the primary judge’s decision.

So are Binding financial agreements enforceable?

The short answer is yes, subject to many conditions being met.

The Family Law Act 1975 (as amended) allows married and de facto couples to enter into a Binding Financial Agreement (‘BFA’) before marriage or cohabitation, during marriage or cohabitation, and after a relationship breakdown. BFAs provide a way for people to protect their assets before getting married or entering into a de facto relationship and set out the division of the couple’s assets should they separate.

Each party to the BFA must enter into the BFA of their own free will and be fully informed as to the advantages and disadvantages of entering into the agreement. Each party must receive independent legal advice about the BFA.

For couples getting married, the decision of the High Court in Thorne & Kennedy strongly enforces the considerations parties must contemplate when entering into a BFA including that the parties should (a) ensure that any contemplation of a BFA should be done many months in advance of the wedding to ensure that there is ample time to prepare the document and negotiate the terms, and (b) that the parties must enter into a BFA only in circumstances where unconscionable conduct of a party does not exist.