It has become commonplace in Australia for couples to enter into a financial, or pre-nuptial agreement prior to marriage. It occurs most often where the parties to the marriage have markedly different financial positions and is done to protect the financial position of the wealthier party.
Whilst such agreements are legally binding and often entered into for a valid reason parties must be careful as to the actual circumstances in which the agreement is entered into as highlighted by the recent Federal Circuit Court case of Parkes v Parkes [2014 ] FCCA 102.
In this case the husband to be surprised his wife to be with a completed financial agreement a mere three days before their wedding was due to take place. He stated to his fiancée that if she did not sign the agreement prior to the wedding then he would call it off. She signed the agreement thus creating a valid financial agreement in contemplation of marriage under section 90B of the Family Law Act.
Unfortunately, as is all too common these days, the parties separated and the wife sought to have the agreement set aside of part of the divorce process. The parties ended up in court. During the trial neither party disputed that the financial agreement had complied with all of huge relevant requirements of the Family Law Act and was therefore binding unless cause to set it aside could be found.
In deciding if such cause existed the court had to consider whether:
- the conduct of the husband in producing the agreement three days before the wedding was unconscionable; or
- by advising his fiancée that the wedding would be called off if she did not sign the agreement, his behaviour amounted to duress or undue influence.
To set the agreement aside on these grounds the wife was required to establish that she was in a position of ‘special disadvantage’, which was known to her husband at the time the agreement was entered into. The wife successfully argued this position of ‘special disadvantage’ because:
- in providing her with the agreement only three days before the wedding, it was the intention of the husband to give her no choice but to sign the agreement;
- she was able to satisfy the court that in her mind she felt she had no choice but to sign the agreement;
- if she failed to sign the agreement then not only would the wedding be cancelled, but the likely outcome would also be the end of their seven year relationship; and
- the agreement gave her no rights in the future to any of his property.
Accordingly the court found that the consent of the wife in signing the agreement was not independent and voluntary because it was over borne and she was therefore under duress and undue influence at the time she signed the agreement.
The court also found that as she was under a ‘special disadvantage, then even if her consent was voluntary the circumstances meant that the husband’s actions were not consistent with equity and good conscious. His conduct also amounted to unconscionable conduct.
This case is a good example of a situation where even though a financial agreement is technically binding under the Family Law Act, if the circumstances under which it is entered into are found to be unfair then the agreement can be set aside in its entirety.
If you are considering having your partner enter into such a financial or pre-nuptial agreement it is worth having a discussion with your lawyer as to its structure and contents, and also how it is to be entered into.