Hot off the press is news the High Court has released its first decision about pre-nups and fairness.
Pre-nups is the common term used to describe Financial Agreements which encompasses both pre-nuptial and post-nuptial agreements. In its decision, the High Court upheld a previous decision to set aside both a pre-nuptial agreement and post-nuptial agreement because. In short the High Court agreed that those agreements weren’t fair. They were entered into through undue influence and unconscionable conduct.
Arguably however, the decision does not significantly change the law about pre-nup enforcement. But what it does do is reinforce the importance of making sure that pre-nup terms are fair and reasonable, as well as placing an emphasis on understanding the particular circumstances of the parties to the agreement.
In this case (Thorne and Kennedy), a pre-nuptial agreement was signed at Kennedy’s insistence just four days before the wedding. Thorne had received “emphatic independent legal advice that the agreement was “entirely inappropriate” and that Ms Thorne should not sign it”. A similar post-nuptial agreement was signed shortly after the wedding. The agreement was that Thorne would receive nothing if the parties separated within three years, and thereafter receive a payment of $50,000. The original decision mad findings that Thorne believed she had no choice but to sign and was essential powerless to do anything but to sign the pre-nup. Six factors supported this decision:
- The lack of financial equality between the parties.
- Thorne’s lack of residency status in Australia.
- Thorne’s reliance on Kennedy for all things.
- Thorne’s emotional connectedness to their relationship and the prospect of motherhood.
- Thorne’s emotional preparation for marriage.
- The publicness of the upcoming marriage.
The High Court upheld the decision to set aside the agreements, finding that the agreements had been entered into by undue influence and unconscionable conduct.
“Of course, the nature of agreements of this type means that their terms will usually be more favourable, and sometimes much more favourable, for one party. However, despite the usual financial imbalance in agreements of that nature, it can be an indicium of undue influence if a pre-nuptial or post-nuptial agreement is signed despite being known to be
The High Court has also provided guidance on factors that might suggest undue influence in the context of pre-nuptial and post-nuptial agreements such as:
- 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.
- The independent advice that was received and whether there was time to reflect on that advice.
Is this decisionabout pre-nups and fairness likely to impact other pre-nups?
There may be other pre-nups that are made invalid by this decision but the vast majority are unlikely to be affected. The decision really highlights the need for very specific legal advice including about the advantages and disadvantages, a broader consideration of the circumstances of the parties, and assessment of whether the agreements is a good agreement given all the circumstances.
There is no reason not to consider a pre-nup and they have not been invalidated by this decision. But no one can use it as a tool to gain comfort where one party is at a serious disadvantage or is being put under pressure.
If you want to understand more about pre-nups and fairness, call for an appointment and we can put your mind at rest, and help you to get it right.