Setting aside financial agreements under section 90K of the Family Law Act

A financial agreement (also known as a pre-nuptial or post-nuptial agreement) may be set aside if the Family Court is satisfied of any of the factors under s90K of the Family Law Act 1975 (Cth), which include where:

• the agreement was obtained by fraud, including non-disclosure by a party of a material matter (s90K(1)(a));
• the agreement is void, voidable or unenforceable (s90K(1)(b)); or
• a material change in circumstances has occurred since the time the agreement was made relating to the care, welfare and development of a child of the marriage and would consequently cause a party to the agreement to suffer hardship if the agreement is not set aside (s90K(1)(d)).

In the High Court’s decision in Thorne v Kennedy [2017] HCA 49, the Court set aside financial agreements pursuant to s90K(1)(e) of the Act after finding that a party “engaged in conduct that was, in all the circumstances, unconscionable” during the time the financial agreements were prepared.

Thorne v Kennedy

The key background facts of this case were as follows:

• Mr Kennedy and Ms Thorne met online in 2006.
• Mr Kennedy was a wealthy property developer and had assets worth between $18 million and $24 million. He was divorced and had three adult children.
• Ms Thorne had no substantial assets and was living in the Middle East.
• The parties were engaged and due to wed. Ms Thorne and her family were subsequently flown to Australia by Mr Kennedy.

Shortly before Mr Kennedy and Ms Thorne’s wedding on 30 September 2007, Mr Kennedy arranged for his solicitors to prepare a pre-nuptial agreement and provided this to Ms Throne to sign.

On or about 20 September 2007, Ms Thorne received legal advice not to enter into the agreement as it would essentially leave her with limited assets if she separated from Mr Kennedy.

Four days before the wedding, Ms Thorne executed the pre-nuptial agreement under pressure from Mr Kennedy’s insistence that the wedding would not proceed if she failed to sign the agreement.

Shortly after the wedding, a second agreement was prepared with terms substantially identical to the first agreement save for some minor amendments. Similarly, and despite the further legal advice given to Ms Thorne not to sign, Ms Thorne signed the second agreement.  This second agreement was intended to replace the first signed agreement.

In 2011, the parties separated, and Ms Thorne subsequently commenced proceedings seeking for the two agreements be set aside.

The primary judge found in favour of Ms Thorne and set aside the agreements on the basis that there was “duress and undue influence.” The primary judge considered six matters that led to the conclusion that Ms Thorne had “no choice”, was “powerless” and was otherwise left with no option but to sign the agreements. Those matters were:

1. her lack of financial equality with Mr Kennedy;
2. her lack of permanent status in Australia at the time;
3. her reliance on Mr Kennedy for all things;
4. her emotional connectedness to their relationship and the prospect of motherhood;
5. her emotional preparation for marriage; and
6. the “publicness” of her upcoming marriage.

Mr Kennedy appealed to the Full Court of the Family Court of Australia. His appeal was allowed and the judges concluded that there was no duress, undue influence or unconscionable conduct on Mr Kennedy’s part as Ms Thorne had “acquiesced in Mr Kennedy’s desire to protect his assets for his children and because she had no concern about what she would receive on separation.”

Ms Thorne then successfully appealed to the High Court of Australia. The judges accepted the six factors considered by the primary judge and found clear evidence of undue influence and unconscionable conduct to set aside both agreements. 

The Court found that these circumstances point to the conclusion that Ms Thorne was subject to a “special disadvantage” in her entry into the agreements, which circumstances were known to Mr Kennedy.  It was also found that part of this special disadvantage was created by Mr Kennedy, who created urgency about signing the agreements, threatened to cancel the wedding without offering to assist Ms Thorne and her family to return home to the Middle East. The Court found that these matters increased the pressure which “contributed to the substantial subordination of Ms Thorne’s free will” in entering into the agreements. That is, the extent to which Ms Thorne was unable to make “clear, calm or rational decisions” was so significant that she could not be described as a “free agent” when she entered into the agreements.

In the context of pre-nuptial and post-nuptial agreements, the judges noted that the following factors should be considered when looking at whether there was undue influence on any party:

1. whether the agreement was offered on a basis that it was not subject to negotiation;
2. the emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement;
3. whether there was any time for careful reflection;
4. the nature of the parties’ relationship;
5. the relative financial positions of the parties; and
6. the independent advice that was received and whether there was time to reflect on that advice.

It is important to carefully review, prepare and understand the terms of your financial agreement before entering it. If you require any advice, contact our solicitors today.