How not to do a Financial Agreement

Background

Mr Kennedy was a 67 year old Greek Australian property developer with assets worth $18 to $24 million.  In 2006 he met Ms Thorne online, a 36 year old Eastern European woman with no substantial assets. After a period of courting, Mr Kennedy indicated his desire to marry Ms Thorne, but also told her that “you will have to sign paper. My money is for my children.”

Seven months after they had met, Ms Thorne travelled to Australia with the understanding that they would marry.  A wedding was arranged for 30 September 2007.  Around 19 September 2007, Mr Kennedy told Ms Thorne they were going to see solicitors about the signing of an agreement.

Mr Kennedy made it clear to Ms Thorne that if she did not sign the agreement then the wedding would not go ahead and the relationship would end. On 20 September 2007, Ms Thorne received independent legal advice that she should not sign the financial agreement.  The solicitor described some of the amounts provided as “piteously small” and the agreement as “entirely inappropriate”.

By this time the wedding arrangements had been booked, guests had been invited, and Ms Thorne’s parents and sister had arrived from overseas in order to attend.  On 26 September 2007, four days before the wedding, Ms Thorne signed the agreement.

They separated approximately 3 ½ years after the wedding, and Ms Thorne commenced proceedings seeking the setting aside of the agreement, and an adjustment of property and spousal maintenance.  The question was whether the agreement was valid and enforceable, or whether it should it be set aside on the basis of duress, undue influence or unconscionable conduct.

Undue influence

Undue influence arises where a person is not a “free agent”.  The court has to consider to what extent was the person constrained in assessing alternative options and deciding between them.

The primary judge had set out six matters which, in combination with the lack of a fair or reasonable outcome, led to the conclusion that Ms Thorne had “no choice” or was powerless:

(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.

On appeal, the High Court said that the extent to which Ms Thorne was unable to make “clear, calm or rational decisions” was so significant that she “could not aptly be described as a free agent”.    The fact that the agreement was signed despite knowing that it was grossly unreasonable may also be an indicator of undue influence.

The High Court set out some of the factors which may be relevant when determining whether there was undue influence when completing a financial agreement:

(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 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.

Unconscionable conduct

Unconscionable conduct exists where a weaker party may be subject to a special disadvantage which seriously affects their ability to make a judgment as to their best interests.   The stronger party must also unconscientiously take advantage of that special disadvantage, and have known or ought to have known of the special disadvantage.

The High Court agreed that as Ms Thorne was subject to undue influence, she was also subject to a special disadvantage which was known to Mr Kennedy, who had “created the urgency” with which the agreement was required to be signed.  He had taken advantage of Ms Thorne’s vulnerability to obtain the agreements which were “inappropriate and entirely inadequate”, and therefore was unconscionable conduct.

Final Comments

Although this Financial Agreement did not work for Mr Kennedy, if you take notice of the statements made by the High Court, a Financial Agreement can still be effective.

Every situation has to be individually considered, however the starting point is that each of the parties must have sufficient time to consider the document, and they must be able to freely negotiate its terms when their legal adviser recommends to do so.  Greater care will need to be exercised when there are significant differences between the parties.

Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.

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