Sign the pre-nup or no wedding: High Court to rule on ‘duress’ under Binding Financial Agreements – Sacha Mastras

Sign the pre-nup or no wedding: High Court to rule on ‘duress’ under Binding Financial Agreements – Sacha Mastras

Binding Financial Agreements are a contract between two or more people that is compliant with the Family Law Act 1975 (Cth) and will usually outline how parties will manage the division of their assets, superannuation and/or spousal maintenance. Binding Financial Agreements can be entered into before marriage or the commencement of a de facto relationship (you might know these as a “pre-nup”), or after separation.

There are strict requirements under the Family Law Act that must be met for a Binding Financial Agreement to be considered binding. These requirements are:

  • The agreement is signed by all parties; and
  • Each party was provided with independent legal advice from a lawyer about the effect, advantages and disadvantages of the agreement; and
  • The lawyer must provide a signed statement confirming that legal advice has been provided; and
  • The agreement has not been terminated and has not been set aside by the Court.

There are limited circumstances where a Binding Financial Agreement can be set aside by a court in accordance with section 90K or 90UM of the Family Law Act, including if:

  • There is evidence of fraud;
  • The agreement was entered into solely for the purpose to defeat a creditor;
  • One party is experiencing hardship due to the agreement or in relation to a child of the parties;
  • The agreement is found to be void and unenforceable due to mistake, misrepresentation, duress at the time of signing, a breach of the agreement or unconscionable conduct;
  • The agreement is deemed to be impractical due to a change in circumstances;
  • There is an issue with splitting superannuation.

Recently, the High Court of Australia has granted leave to a Wife to appeal a decision from the Full Court of the Family Court of Australia in Kennedy & Thorne [2016] FamCAFC 189 in relation to Binding Financial Agreements.

In this matter, the parties met online in 2006 when the Wife was living in Romania and they started living together in Australia in February 2007. The Wife was aged 36 years with little by way of assets, whilst the Husband was a 67 year old developer with net assets somewhere between $18 million and $24 million. A week before the wedding, the Wife signed a “pre-nup” against the advice of her lawyers, because the Husband said he would cancel the wedding if she refused. The Husband was very clear that he wanted his fortune to go to his children.

The parties separated after being married for approximately four years, and the Wife made an Application to the Federal Circuit Court of Australia seeking to have the agreement set aside. The Husband died during the hearing in 2014, and the hearing has continued with the executors and trustees of his estate acting as Case Guardians.

Since the Wife’s initial Application, the case has been appealed from the Federal Circuit Court to the Family Court of Australia and then to the Full Court of the Family Court of Australia. The Wife has been granted special leave to appeal the decision in the High Court, seeking clarification on the law in respect of financial agreements.  The Wife’s barrister, former Queensland Attorney-General Matt Holey has said that the High Court has a “golden opportunity” to clarify the law around Binding Financial Agreements and will argue that the Appeal Court applied the wrong test for duress in their decision.

Counsel for the Husband’s estate, Robert Lethbridge SC will argue that the Wife willingly signed the agreement after obtaining independent legal advice and was well aware of the terms and conditions of the agreement if the marriage ended.

The High Court will likely address a number of issues, including:

  • What is the distinction between duress, undue influence and unconscionable conduct?
  • Is the insistence of one party that the other party enter into a “pre-nup” as a precondition of a marriage taking place sufficient conduct to establish duress, undue influence, or unconscionable conduct?
  • If a party has obtained independent legal advice and a Statement of Advice by a lawyer has been attached to the agreement, does this mean that there cannot be a finding of duress, undue influence or unconscionable conduct?
  • Is a marriage or intimate relationship so unique that the Courts should treat Binding Financial Agreements differently from other types of contracts? Should a different test apply to intimate relationships as compared to commercial relationships?
  • How is the concept of duress viewed in the family law context?

The special leave Application and the parties written submissions are available to be viewed online []. The High Court is due to hear the appeal on August 8, so watch this space!