High Court intervenes in private Family Law Agreement

7-December-2017 Family Law By Simone Green

Anyone considering making a Financial Agreement in circumstances where there is unequal bargaining power and a significant proposed imbalance in assets and income should obtain specialist Family Law advice before proceeding.

The High Court recently considered the issue of unconscionable conduct and duress in relation to financial agreements. The facts of Thorne v Kennedy [2017] HCA 49 (8 Nov 2017) involved two financial agreements, one being a ‘pre-nup’ made very close to the date of the marriage; and the second one made during the marriage in almost identical terms to the first, were set aside for undue influence. This case shows that people should take great care in entering into Financial Agreements which are far below what would be a likely outcome if the matter was litigated through the Family Courts. Obtaining independent legal advice is not enough in itself to avoid a Financial Agreement being set aside by the Court.
The facts of the Thorne v Kennedy case are set out as follows. The couple met online on a site for potential brides, both were Greek Orthodox, Mr Kennedy was an Australian of Greek descent and 67 years old and Ms Thorne was a 36 year old Eastern European lady living in the Middle East. Mr Kennedy a wealthy property developer with estimated assets of between $18 million and $24 million, was divorced with three adult children and Ms Thorne who had minimal possessions, was divorced and childless. Around 7 months after meeting, Ms Thorne moved to Australia to live with Mr Kennedy in an expensive penthouse with the intention of marrying him. Mr Kennedy made it clear to Ms Thorne he would marry her but told her ‘you will have to sign paper. My money is for my children’.

The wedding was set for 30 September 2007 and Ms Thorne’s parents and her sister had been flown from Eastern Europe to Australia for the wedding, the reception had been booked and invitations sent when Mr Kennedy took Ms Thorne and her sister to see a solicitor to obtain independent advice on a pre-nuptial financial agreement he required. He told Ms Thorne if she did not sign the Agreement the wedding would not proceed. Ms Thorne’s solicitor urged her not to sign the Agreement as it was the worst Agreement she had ever seen and had been drawn solely to protect Mr Kennedy’s interests. The Agreement only proposed to provide Ms Thorne with any assets if she remained married for 3 years and thereafter she would receive only $50,000, she was to receive a maintenance amount of 25% of the net income from the management rights of a proposed development or $4,000 per month and if Mr Kennedy were to die during the marriage she would receive a property, a car and $5,000 per month. Minor amendments were made to the Agreement and again advice was given to Mrs Thorne not to sign it. Ms Thorne signed the pre-nuptial Agreement against advice just 4 days prior to the wedding.

Ms Thorne had no job in Australia, no visa and no community supports and was entirely dependent on Mr Kennedy for all of her needs.

The second Financial Agreement was signed in substantially identical terms on 5 November 2007 as it was a requirement of the pre-nuptial Agreement to enter into a further agreement within 30 days of the marriage. Again Ms Thorne’s solicitor advised her not to sign the Agreement as it was against her interests. She signed the second Agreement.

The parties separated in June 2011, less than 4 years after marriage and Ms Thorne commenced court proceedings to set aside the two Agreements and sought a property adjustment. Mr Kennedy died during the first trial and his executors continued the litigation. The trial judge set aside both Agreements on the basis of duress and undue influence, and found that the only condition which had changed between the signing of the two Agreements was that the second agreement did not contain time pressure.

The executors of Mr Kennedy appealed the trial judge’s decision to the Full Court of the Family Court on the basis that among other issues, the trial judge erred in finding that Ms Thorne was subject to duress, undue influence or unconscionable conduct in her entry into each of the Agreements. The Full Court determined that a lack of financial equality might have been determinative, although a finding of financial inequality could never provide a reasoned basis for duress and that the trial judge had made an error in the test for duress. The Full Court held that the Agreements were fair and reasonable because Mr Kennedy had told Ms Thorne at the outset that his wealth was intended for his children and she agreed to that and that they were not unconscionable.

The High Court overturned the Full Court’s decision and reinstated the trial judge’s orders to set aside the 2 Financial Agreements on the basis that the Full Court erred in rejecting the trial judge’s finding that there was no outcome available for Ms Thorne that was fair or reasonable and that Mrs Thorne signed the Agreements as a result of undue influence. Ms Thorne was then therefore able to seek a property adjustment Order from the Court that was just and equitable in all of the circumstances.

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