Are Pre-Nuptial Agreements Still Worthwhile?

Pre-nuptial agreements allow parties to control the division of the couple’s assets in the instance a relationship breaks down.

These agreements will only be binding when certain requirements are met and can be set aside by the court in circumstances where a party engaged in unconscionable conduct in the process of developing the financial agreement.

Unconscionable Conduct:

In Thorne v Kennedy [2017] HCA 49, High Court famously set aside an agreement between Mr Kennedy, a property developer with assets of between $18 and $24 million, and his Eastern European wife Ms Thorne, of almost no means.

Mr Kennedy made arrangements for Ms Thorne to move to Australia so the couple could marry, instructing a solicitor to draft an agreement which provided Ms Thorne with nothing if the pair separated within three years of marriage and $50,000.00 for anything beyond that.

Ms Thorne was taken to see a solicitor about the agreement four days before the wedding where she was advised against signing the agreement, but did so anyway. The terms of this agreement were non-negotiable and Ms Thorne was required to enter into a second agreement some 30 days after the first, with substantially identical terms.

These circumstances led the High Court to find Ms Thorne was at a special disadvantage which was taken advantage of by Mr Kennedy, amounting to undue influence. The six key factors relied upon the court in setting aside the agreement included:

  1. A lack of financial equality;
  2. Lack of permanent status in Australia;
  3. Reliance on a person to the agreement for all things;
  4. Emotional connectedness to the relationship and prospect of motherhood;
  5. Emotional preparation for the marriage; and
  6. Publicness of an upcoming marriage.

These factors are extremely relevant when considering whether a financial agreement will be effective.

Compliance with the Family Law Act 1975:

The formalities contained in the Family Law Act 1975 must also be complied with in order for a binding financial agreement to be legally binding on the parties.

Below are several key points that couples should consider when entering into a Binding Financial Agreement.

  • Pursuant to the Family Law Act 1975, both parties require certificates which confirm they have received independent legal advice. It is important that individuals are advised on the effect of the agreement on their rights and the advantages and disadvantages of making an agreement in a signed statement.
  • A copy of this signed statement must be given to the other party or a legal practitioner of the other party.
  • If a couple enter into a binding financial agreement whilst in a de facto relationship, it will automatically be terminated upon marriage.
  • A financial agreement will not be binding where it includes a separation declaration, unless this is signed post-divorce.

In Summary:

Effective pre-nuptial agreements clearly establish each party’s contributions to the relationship providing certainty in their financial affairs and a fair distribution of assets.

Those that do not comply with the Family Law Act or involve an element of unconscionability or fraud are generally ineffective. Consequently, it is important that these agreements are drafted in a way that adequately provides for a person in separation and is pursuant to the relevant law.

If you are considering entering into a binding financial agreement, you should obtain independent legal advice.

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