A pre-nuptial agreement (known in Australia as a binding financial agreement) allows individuals to protect themselves financially with a prearranged, legally binding agreement between spouses. It can designate certain current and future assets as individually owned (i.e. separate) rather than marital property that can be subject to division upon divorce.
While most people rightfully enter marriage with the utmost of optimism, “forever” is not always the outcome. The statistics reveal that about a third of all marriages in Australia end in divorce. Younger couples may not consider the need for one at all; it’s more likely to come up with people entering a second or later marriage, especially when there are children from a prior marriage. These people are generally are older, more established in their careers, and often have meaningful assets.
This doesn’t mean that a pre-nuptial agreement is not a good idea for younger couples. Inherited assets can be particularly difficult to deal with. Inherited assets can easily become marital property. Depositing inherited assets into a joint account, or using separate assets to purchase a jointly owned residence that benefits both spouses may blur the lines between inherited property and marital property.
Pre-nuptial agreements can be especially important to protect children in the context of high-net worth families. These agreements create a clear and concise framework that helps to avoid uncertainty of a divorce settlement, thus ensuring that the intended beneficiaries receive the appropriate family assets.
What if you’re forced to sign a pre-nuptial agreement?
A landmark ruling handed down by the High Court means that the circumstances in which such agreements are signed will be more closely scrutinised.
The decision in Thorne v Kennedy, in which a young Eastern European woman successfully fought to overturn a prenup she signed on the eve of her marriage to a millionaire property developer twice her age, means the woman is now set to become a millionaire in her own right.
The landmark case, which has been closely watched by family and commercial lawyers, started way back in 2006 when the then 67-year-old property developer met the 36-year-old woman on a website for potential brides.
Mr Kennedy told Ms Thorne — both pseudonyms, as neither party can be identified in a Family Court case — shortly after they met online, “If I like you I will marry you but you will have to sign paper. My money is for my children.”
Mr Kennedy, a divorcee with three adult children, had assets worth between $18-$24 million, while Ms Thorne had no substantial assets and spoke limited English. Seven months after they met, she moved to Australia to marry Mr Kennedy.
The primary judge noted that Ms Thorne left behind “her life and minimal possessions” and that “if the relationship ended, she would have nothing, no job, no visa, no home, no place, no community”.
Shortly before the wedding, Ms Thorne signed the prenup at the insistence of Mr Kennedy, who threatened to call off the wedding if she did not sign. That was despite independent legal advice that the agreement was “entirely inappropriate” and the worst her solicitor had ever seen. She then signed another agreement 30 days after the wedding.
Together, the agreements limited her claim to any property settlement to $50,000 after three or more years of marriage. The pair divorced in 2011 after three years of marriage. Ms Thorne took her ex-husband to court in 2012 seeking for the agreements to be overturned.
She sought a property settlement of $1.24 million, including spousal maintenance. Mr Kennedy died in 2014, but his estate continued to fight against Ms Thorne’s bid for a bigger slice of his wealth.
In its decision, the High Court unanimously found the agreements should be set aside for “unconscionable conduct”, while a majority of the High Court also held that the agreements should be set aside for “undue influence”.
“The findings and conclusion of the primary judge should not have been disturbed,” the High Court wrote. “The agreements were voidable due to both undue influence and unconscionable conduct.
“The fact that Ms Thorne was willing to sign both agreements despite being advised that they were ‘terrible’ serves to underscore the extent of the special disadvantage under which Ms Thorne laboured.”
The Family Law Act allows people who are thinking of marrying or entering into a de facto relationship (as well as people who are already married or in a de facto relationship) to make an agreement setting out how their assets will be divided if they do end up separating. The requirements of these agreements are quite strict, including the need for both parties to get their own legal advice from a solicitor.
At Divorce Lawyers Brisbane we advise our clients on the advantages and disadvantages of entering into these agreements so that the clients are fully aware of the consequences of signing a financial agreement prior to entering into one. For your FREE, 10-minute phone consultation, please contact us today.