Financial Agreements post Thorne v Kennedy – Still Worth the Effort?

The recent High Court decision in Thorne v Kennedy has been seen by many as “spelling the end of binding financial agreements in Australia” (such as in this article: http://www.afr.com/news/high-court-rules-worst-prenups-invalid-20171108-gzh33y).

Financial agreements (also called BFA’s or prenuptial agreements) are made under the Family Law Act and can be made before, during or after a marriage (sections 90B, 90C and 90D). There are strict requirements as to their form and both parties must receive independent legal advice prior to signing.

The Family Law Act also sets out the basis upon which a financial agreement can be set aside. These grounds include fraud as well as “the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts” (sections 90K & 90KA).

The decision before the High Court in Thorne v Kennedy was whether the financial agreements signed by the parties should be set aside on grounds of duress, undue influence or unconscionable conduct.

The financial agreements were set aside and pressure, influence and exploitation were key factors in the case.

However, whilst many are predicting the end of financial agreements, each case turns on its own facts and, in this one, the facts very clearly established that the wife was pressured and influenced to sign the financial agreement and that her dire personal circumstances were also exploited.

It is too soon to predict the demise of properly drafted financial agreements that are used in the correct circumstances.

Thorne v Kennedy does tell us that merely being advised of the unfairness of a financial agreement or that a party has rejected clear and proper legal advice will not prevent a later challenge to the financial agreement by that party.

Despite Thorne v Kennedy, financial agreements can still be binding if:

  1. They meet the strict requirements as to form and independent legal advice set out in the Family Law Act;
  2. The provisions are fair; and
  3. They are drawn up in circumstances where the parties have ample time to properly consider and take advice on their contents (months rather than days) as any time or situational pressure (impending wedding, immigration status, etc) may amount to undue influence.

The full decision can be found here: http://www.hcourt.gov.au/cases/case_b14-2017

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