A Lesson About Pre-Nups

A short case summary of the High Court decision of Thorne v Kennedy which set aside two Financial Agreements (often colloquially called “”pre-nups”).

Imagine uprooting your life for the sake of the one you love only to be told right before the wedding that unless you signed a “prenup” the marriage wouldn’t go ahead. You love this person and you want to marry them, why wouldn’t you sign? Your fiancé paid to bring your family from overseas, if the marriage didn’t go ahead, how would they get back home? And less than two weeks before the wedding, everything was nearly ready for what is supposed to be the happiest day of your life.

What would you do if you were in this position?

That’s exactly what Ms Thorne did too.

After meeting online on a brides-to-be website, Mr Kennedy, a property developer with substantial assets worth 18 million, brought Ms Thorne (who had minimal assets) over from the Middle East to Australia to get married. Mr Kennedy had spent his life working hard to provide for his children and building his successful business. Wanting to leave this amassed wealth for his children, Mr Kennedy told Ms Thorne that if she wanted the marriage to go ahead she had to sign a prenup. Against the advice of her lawyer, Ms Thorne signed the agreement as well as a follow up post-nuptial agreement containing the following:

1. Maintenance of (i) $4000/month or (ii) 25% of the net income from the management rights of a proposed development.
2. Ms Thorne and her family would be permitted to live rent-free in the proposed development (this had been refused planning permission).
3. If separation occurred within three years Ms Thorne would receive nothing.
4. If separation occurred after three years, Ms Thorne would receive a lump sum of $50,000.
5. If Mr Kennedy died during the marriage, Ms Thorne would be entitled to (i) a penthouse in the proposed development, or unit in the same city not exceeding market value of $1.5 million; (ii) 40% of the net income of the management rights of the proposed development or $5000 per months, whichever was greater; and (iii) the Mercedes Benz car that was presently in her possession or a replacement vehicle of the same or higher value.

Before their fourth wedding anniversary, Mr Kennedy and Ms Thorne separated. Ms Thorne took legal proceedings protesting the agreement. Despite Mr Kennedy’s death partway through the proceedings, his estate continued to oppose Ms Thorne, who appealed her case to the High Court.

The High Court was unanimous in holding that the agreement should be set aside for unconscionable conduct, with the majority holding that there was also undue influence. The fact that Ms Thorne signed the agreement knowing it was unfair and unreasonable, indicated undue influence – but she felt she had no choice but to sign as the wedding was in four days after all!

Some of the reasons pointing towards Ms Thorne’s powerlessness:

1. Ms Thorne’s lack of assets and reliance on Mr Kennedy for everything;
2. Ms Thorne’s lack of permanent status in Australia at the time; and
3. Ms Thorne’s emotional state – she was just about to get married to the man she loved, her family came from overseas for the marriage, and she was excited at the prospect of motherhood.

The  Court held that rationale of the doctrine of unconscionable conduct is “to ensure that it is fair, just and reasonable for the stronger party to retain the benefit” of the transaction in question. Mr Kennedy was aware that Ms Thorne was at a special disadvantage. She had no bargaining power and was unlikely to be able to effect any change to the agreement. Mr Kennedy unconscientiously took advantage of her vulnerability, and in part, even created the circumstances that led to her special disadvantage.

When writing up a prenup, be sure to consider:

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.

In these circumstances, where there was a power imbalance between parties, the Court found “the financial agreements were neither fair nor just nor reasonable”.

So, if you are writing a prenup, this is a case where a little won’t go a long way. Be fair and make sure to leave plenty of time for consideration and negotiation.  Be sure you also get assistance and advice from a lawyer who specialises in family law and the preparation of these types of agreements.

At Neilan Stramandinoli Family Law, we specialise in financial agreements and all matters family law.