What are Financial Agreements?
A Financial Agreement is a contract which sets out the division of property and spousal maintenance matters in the event of the breakdown of a relationship. Financial Agreements are legally binding and can be enforced by the Federal Circuit and Family Court of Australia (the “Court”), which allow for certainty, trust, and peace of mind in a relationship.
However, the High Court of Australia has made it clear in a case that it will not enforce any Financial Agreements as a consequence of unconscionable conduct, particularly when there is a significant power imbalance between the parties. Unconscionable conduct is defined to mean conduct which is so harsh that it goes against good conscience. A common instance is when an innocent party is subject to a special disadvantage which seriously affects their ability to make a judgment as to their own best interests.
Financial Agreements are legally binding agreements that address what happens to a couple’s property and spousal maintenance in the event that there is a break down in a marriage or de-facto relationship. Parties could also enter into a Financial Agreement before a de-facto relationship or marriage or post-separation.
The Family Law Act 1975 is the relevant legislation which applies to Financial Agreements. Importantly, a Financial Agreement can protect assets including cash, property, superannuation and inheritances.
However, in order for a Financial Agreement to be binding on the parties’, it is prudent that each party obtain independent legal advice, and the Financial Agreement must contain a statement from a legal practitioner.
Financial Agreement Case: Thorne v Kennedy
A High Court case has demonstrated that if a Financial Agreement is entered into in circumstances of unconscionable conduct, the agreement will not be upheld.
Thorne v Kennedy involved a Financial Agreement between a wealthy Australian property developer and his ex-wife.
The couple met online in 2006 on a website for potential brides. At the time, Ms Thorne was 36 years old, living in the Middle East with no substantial assets. Mr Kennedy was 67 years old and had assets in the vicinity of $18 – $24 million.
Ms Thorne moved to Australia. Then ten days before their wedding Mr Kennedy took Ms Thorne to a solicitor to obtain advice about the terms of a Financial Agreement which was purported to be entered into between them. The lawyer advised Ms Thorne that the agreement was highly prejudiced against her and advised her not to sign it. Mr Kennedy told Ms Thorne that if she did not sign the agreement then the wedding would not go ahead. Despite the lawyer’s advice, Ms Thorne signed the agreement and the wedding went ahead.
The couple separated in 2011, and Ms Thorne was provided with what the High Court described as a ‘piteously small’ lump sum payment based on the terms of the Financial Agreement. After lengthy legal proceedings, the High Court ruled that Mr Kennedy had taken advantage of his ex-wife’s vulnerability to obtain an agreement which was ‘entirely inappropriate and wholly inadequate.’ The agreement was entered into as a result of undue influence, illegitimate pressure and unconscionable conduct – Ms Thorne was in a foreign country, with no support system, and was entirely reliant on Mr Kennedy for financial and emotional support. Mr Kennedy had also promised to help relocate Ms Thorne’s family to Australia following the marriage. As a result, the Financial Agreement was not enforceable and was subsequently set aside.
The Impact of Thorne v Kennedy on Financial Agreements in Australia
This ruling has been considered a landmark case in the interpretation of Financial Agreements in Australia. As a consequence of the agreement being set aside, the Federal Circuit and Family Court of Australia allowed Ms Thorne to bring a property settlement claim against Mr Kennedy.
This case serves to highlight that preparation of Financial Agreements must be approached with the utmost care, and therefore, appropriate advice and caution must be taken when entering into these Agreements.
Contact us
If you need to speak to an experienced family lawyer regarding entering into a Financial Agreement, please contact Etheringtons Family Lawyers in North Sydney on 9963 9800 or via the form here.