Binding Financial Agreements and the Ramifications of Thorne v Kennedy

The nature of binding financial agreements (sometimes known as ‘pre-nups’) and the way they are made in a relationship were changed irrevocably by the High Court’s decision in the case of Thorne v Kennedy made back in 2017.

The details of Thorne v Kennedy

Mr Kennedy was an extremely wealthy 67-year old property developer who met a 36-year old Eastern European woman via the internet back in 2006. The couple left for a romantic getaway where they travelled Europe together, only to return to Australia in early 2007 with the intention of being married. Mr Kennedy had informed Ms Thorne that if they were to marry, she should agree to sign the relevant papers and that his fortune would be left to his three adult children.

The first agreement

Only 18 days prior to the wedding date, on 20 September 2007, Mr Kennedy arranged for Ms Thorne to seek independent legal advice about the details of their first agreement. Ms Thorne had no prior knowledge of the contents of the agreement. The previous day, Ms Thorne was advised by Mr Kennedy that their wedding would not go ahead if she refused to sign the agreement. By this time, Ms Thorne’s relatives from Europe had already arrived in Australia to attend the wedding and the preparations for the wedding had begun.

The advice which Ms Thorne received on the following day included:

1. Ms Thorne should receive a monthly maintenance payment during her marriage to Mr Kennedy of $4,000 or 25% of the net income from the management rights of a proposed development, whichever was greater.
2. Ms Thorne’s family were permitted to live with Ms Thorne rent-free in the proposed development.
3. Ms Thorne would not receive anything if she and Mr Kennedy were to separate within the first three years of their marriage.
4. Ms Thorne would receive a lump-sum of $50,000 from Mr Kennedy, if the couple were to separate after three years.
5. In the event that Mr Kennedy was to pass away while the parties were living together as a married couple, Ms Thorne would be entitled to:
6. a) either a penthouse in a proposed settlement or a unit within the same city that does not exceed $1.5 million in value;
7. b) the greater of $5,000 per month or 40% of the net income of the management rights of the proposed development;
8. c) Ms Thorne’s current Mercedes-Benz motor vehicle, or another vehicle of equal or greater value.

Ms Thorne was advised by her solicitor that given the financial position of Mr Kennedy, the provisions of the agreement were too modest. In addition to this advice, the local council had actually refused planning permission for Mr Kennedy’s proposed development included within the arrangement. Thirdly, the lump sum that Ms Thorne would receive if she and Mr Kennedy were to separate after three years was considered extremely undervalued.

Ms Thorne’s solicitor stated that the agreement was the worst he had ever seen and “entirely inappropriate”. It seemed apparent that Ms Thorne was under extreme duress to agree to these provisions in order for the wedding to proceed.

The second agreement

Subject to a few minor amendments made to the first agreement as requested by Ms Thorne’s lawyer, Ms Thorne signed the first agreement. However, a second agreement was produced soon after, in accordance with a recital held within. During a meeting with Ms Thorne and her lawyer, Ms Thorne’s lawyer pushed her not to sign the second agreement. During this meeting, Mr Kennedy actually called Ms Thorne, asking her how much more time she required. This act provided further indication that Ms Thorne was under duress in signing the ‘pre-nup’ agreement.

Four years after the marriage between Ms Thorne and Mr Kennedy took place, Mr Kennedy signed a separation declaration, which led to the commencement of court proceedings by Ms Thorne.

The trial judge’s findings

The trial judge ruled that in addition to six matters which led to Ms Thorne having “no choice” but to sign the agreement, there was an obvious imbalance of financial position. The six matters (which the High Court later agreed with) were:

1. Financial inequality in comparison to Mr Kennedy;
2. lack of permanent residence status in Australia;
3. Ms Thorne’s reliance on Mr Kennedy;
4. Ms Thorne’s feelings towards the relationship and the prospect of motherhood;
5. Ms Thorne’s emotional preparation for marriage and the publicness of the upcoming marriage.

The full court’s findings

On appeal to the Full Court of the Family Court by Mr Kennedy’s estate (he had died during the initial proceedings), the trial judge’s findings were set aside for the reasons that Mr Kennedy had originally advised Ms Thorne that his wealth was for his children. Ms Thorne accepted this and her only concern (which the agreements acknowledged) was that provision be made for her if Mr Kennedy were to die.

The Full Court also held that Mr Kennedy had not taken advantage of Ms Thorne and that his conduct was not unconscionable because: there were no misrepresentations of Mr Kennedy’s financial position; there were early representations that Ms Thorne would not receive his wealth if they were to separate; Ms Thorne faithfully believed that Mr Kennedy would not leave and repudiated any concern for her financial position if that were to happen; and Mr Kennedy had accepted the hand-written amendments sought by Ms Thorne’s solicitor.

Ms Thorne’s appeal to the High Court

The High Court held that the Full Court was wrong in rejecting the trial judge’s findings that there was no fair and reasonable outcome available to Ms Thorne. The Court found the trial judge had actually understated the predicament of Ms Thorne and that, in combination with the six factors outlined by the trial judge, an inequality of bargaining power was not the only basis for the original decision.

The High Court listed a number of points which it said were noteworthy in the context of financial agreements, including:

1. Whether the agreement was offered and not subject to negotiation;
2. the emotional circumstances in which the agreement was entered;
3. whether there was any time for prudent consideration;
4. the nature of the relationship between Ms Thorne and Mr Kennedy;
5. the financial positions of the parties; and
6. the independent advice that was received and whether there was time to consider the advice.

The implications for binding financial agreements today

The High Court finding of undue influence and unconscionable conduct on Mr Kennedy’s behalf in relation to the agreements between Ms Thorne and Mr Kennedy, based on Mr Kennedy’s pressuring, the inequality of bargaining power and extreme difference in financial position, has considerable implications for how binding financial agreements will be negotiated and agreed to, going forward. It’s highly advisable to consult a legal expert in this area if you need further advice or guidance.