There is part of me that has never really understood the idea of a person wanting to enter a contract with someone (whom they profess to love and want to marry) which makes provision for what is to happen upon that relationship ending.

It is not as if the irony of that circumstance has ever left me,  but over the course of my career – which has always had legislation which provides for parties contemplating marriage to enter such contracts – I have accepted that there is a real and genuine and sensible reason for such contracts being made.  These contracts are called Binding Financial Agreements which are also commonly referred to as “prenups” (due to our penchant for Americanising everything).

I say this to clients who want advice on Binding Financial Agreements entered prior to marriage:

1. You should not seek to enter such a contract to short change your future spouse; and
2. That the purpose of entering the Agreement is to have certainty and to avoid costly and protracted litigation at the conclusion of the marriage.

I also say to clients that they should proceed on the basis that there is a real likelihood that they will be challenged and potentially set aside if your marriage ends, and that the best way to protect your assets and wealth is not to proceed with the relationship.  The last part of that advice is always met with a chuckle but it nevertheless is true.

The recent High Court decision of Thorne v Kennedy confirms what I have always said to clients.

At a recent professional development conference I attended, the recent High Court decision was discussed amongst my peers in an open mike style of session.  A number of very experienced practitioners said that they were no longer prepared to act on matters involving Binding Financial Agreements, and have not done so for some time, because of the uncertainty surrounding the enforceability of such Agreements.  That should speak volumes to those wanting to know about the strength of such Agreements to any challenge.

It is often the case that parties to such Agreements usually consist of a party who is significantly more wealthy than the other party.  This was certainly the situation of the parties involved in the High Court decision.  The disadvantage of the less financial spouse in those contractual negotiations and the “meeting of the minds” was a predominant feature in the High Court’s reasoning.  The circumstances of that case were also that the more financial spouse said effectively, “no agreement, no marriage”.  Now you may think that is fair enough – the Full Court of the Family Court held that view.  However, the proper approach ought to have been, “you can either enter this Agreement, or we can negotiate other terms or we don’t enter any Agreement at all”.  Now if the latter prevailed, and the relationship ended at some point into the future (after marriage), then the parties’ respective entitlements would be as subsequently negotiated or as determined by a Court applying the relevant provisions of the Family Law Act 1975.

So whilst the High Court decision does not change my thinking or view of Binding Financial Agreements, I consider that it has given much needed clarity.  As with any contract, a Binding Financial Agreement is capable of being challenged.  That is nothing new.

If you have entered a Binding Financial Agreement (prenup) then it is probably worth your while contacting the lawyer who acted for you to review the terms and identify whether you need to renegotiate the terms to avoid falling fowl of the recent High Court decision.  Alternatively, we would be happy to assist.