BFAs - The High Court's (Greatest) View**

In late 2017, there was further guidance from the High Court in relation to the manner in which parties to the BFA must conduct themselves if they are wanting the agreement to be binding. As usual, if you would like a copy of the decision please contact me.

The case itself received a significant amount of media attention, however with the aid of hindsight it is perhaps most objectively summarised by the publication released by the High Court at the time of them releasing their judgement, which is set out below.

High Court summary

Today the High Court unanimously allowed an appeal from the Full Court of the Family Court of Australia in the case of Thorne v Kennedy [2017] HCA 49.

The High Court held that two substantially identical financial agreements, a pre-nuptial agreement and a post-nuptial agreement, made under Pt VIIIA of the Family Law Act 1975 (Cth) should be set aside.

Mr Kennedy and Ms Thorne (both pseudonyms) met online in 2006.

Ms Thorne, an Eastern European woman then aged 36, was living overseas. She had no substantial assets.

Mr Kennedy, then aged 67 and a divorcee with three adult children, was an Australian property developer with assets worth over $18 million.

Shortly after they met online, Mr Kennedy told Ms Thorne that, if they married, "you will have to sign paper. My money is for my children".

Seven months after they met, Ms Thorne moved to Australia to live with Mr Kennedy with the intention of getting married.

About 11 days before their wedding, Mr Kennedy told Ms Thorne that they were going to see solicitors about signing an agreement.

He told her that if she did not sign it then the wedding would not go ahead.

An independent solicitor advised Ms Thorne that the agreement was drawn solely to protect Mr Kennedy's interests and that she should not sign it.

Ms Thorne understood the advice to be that the agreement was the worst agreement that the solicitor had ever seen. She relied on Mr Kennedy for all things and believed that she had no choice but to enter the agreement.

On 26 September 2007, four days before their wedding, Ms Thorne and Mr Kennedy signed the agreement. The agreement contained a provision that, within 30 days of signing, another agreement would be entered into in similar terms.

In November 2007, the foreshadowed second agreement was signed. The couple separated in August 2011.

In April 2012, Ms Thorne commenced proceedings in the Federal Circuit Court of Australia seeking orders setting aside both agreements, an adjustment of property order and a lump sum spousal maintenance order. One of the issues before the primary judge was whether the agreements were voidable for duress, undue influence, or unconscionable conduct. The primary judge set aside both agreements for "duress".

Mr Kennedy’s representatives appealed to the Full Court of the Family Court, which allowed the appeal. The Full Court concluded that the agreements should not be set aside because of duress, undue influence, or unconscionable conduct.

By grant of special leave, Ms Thorne appealed to the High Court. The High Court unanimously allowed the appeal on the basis that the agreements should be set aside for unconscionable conduct and that the primary judge's reasons were not inadequate.

A majority of the Court also held that the agreements should be set aside for undue influence. The majority considered that although the primary judge described her reasons for setting aside the agreements as being based upon "duress", the better characterisation of her findings was that the agreements were set aside for undue influence.

The primary judge's conclusion of undue influence was open on the evidence and it was unnecessary to decide whether the agreements could also have been set aside for duress.

Ms Thorne's application for property adjustment and lump sum maintenance orders remains to be determined by the Federal Circuit Court.

** for the trainspotters the title of the post today is riffed from 2002 and Silverchair’s ‘The Greatest View’ see:

Being stuck** with ’fixed’ testamentary trust wills

Previous View posts have touched on the concept of a basic form ‘fixed’ testamentary trust where the assets are required to pass directly to infant beneficiaries on them attaining a certain age (often 18).

One issue that advisers need to be aware of in this area however is that even where, on the face of the document, the age at which an infant beneficiary might appear to be entitled is over 18 (for example if the age of 25 is nominated) there can be situations that as soon as the relevant beneficiaries reach the age of majority (18) they can legally require the assets be transferred to them.

In other words, even though the will may mention that entitlements are not to be taken until the age of 25, a beneficiary may be able to force a trustee to distribute assets to them on them turning 18 years of age.

The rules in relation to this issue can be complex, however essentially there are cases that support the argument that if there is no contingent requirement that needs to be satisfied by the beneficiary then they will be able to force the distribution of the assets to them.

** For the trainspotters, the title of today's post is riffed from the Ned’s Atomic Dustbin song ‘Stuck’.

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Guardianship appointment under wills – another application of The Vibe **

Last week, an adviser (on behalf of a client) questioned how binding the nomination of a guardian under a will for infant children is likely to be.

The simple answer is that in a practical sense our experience is that the nomination of a guardian is almost always followed. Arguably however this experience is nothing more than reliance on the well known legal principle ‘The Vibe’.

The strict legal answer is that the courts retain the final and absolute authority to determine who the guardian of an infant child should be with their only responsibility to determine what is in the best interest of the child.

Obviously, in a situation where both parents have died and there is a nomination of a guardian under their wills, the courts will normally put a significant amount of weight on this nomination. Despite the court’s inherent power, it is somewhat unusual to have a situation where the nomination under the will is not followed.

** for the trainspotters Dennis Denuto and his vibe legal principle need no introduction, see:

Ensuring loans are loans and people are people** – part 2 – the Berghan decision

Following last week’s post, the case of Berghan & Anor v Berghan [2017] QCA 236 is a stark reminder. As usual, if you would like a copy of the decision please contact me.

Broadly, the factual matrix was as follows:

1. A son had borrowed (either directly or via related entities) a six-digit sum from his parents over an extended period.
2. The total amount lent was by way of instalments on a number of separate occasions.
3. On every occasion, there was a confirmation from the parents that they intended the amount to be a loan.
4. In saying this however, no formal agreement was ever entered into.
5. There was also an extended delay between the point in time at which the loans were made and when the parents ultimately sought recovery of the loans.

In the initial court decision, it was held that despite the reference to the loans, the conduct of the parents was more analogous to a gift, and on this basis, there was no obligation at law (ignoring any moral argument) that the son had to repay the amounts.

While on appeal, the parents were successful in having the court confirm that the amounts were actually loans repayable on demand, the fact that there was a protracted legal case to achieve this outcome is a stark reminder to ensure that comprehensive legal agreements are implemented.

The court focused on the factual matrix to determine whether the transactions had objectively demonstrated that the payments were made by way of an oral loan agreement and were not gifts. Once it was determined that the advances were loans, it was confirmed that at law, in the absence of anything to the contrary, such loans are deemed to be at call and repayable on demand.

Finally, independent legal advice should be obtained by each party to ensure that the prospects of, particularly the borrower, arguing that the arrangements were in fact a gift is unsustainable.

** for the trainspotters the title of the post today is riffed from 1984 and Depeche Mode’s ‘People are People’, see here:

Ensuring a loan is a loan (or alone with you**) – part 1

Arguably, in relation to any form of loan arrangement, it is fundamentally important that there are documents confirming the exact terms that apply.

Purely from an asset protection perspective, ignoring wider issues such as the commercial arrangements, estate planning and tax, the importance of documenting loan arrangements in writing cannot be underemphasised.

Similarly, it is critical to consider:

1. Regular repayments, even if only nominal, to ensure that the terms of the agreement remain on foot and acknowledged by the parties. In this regard, as profiled elsewhere in these posts, government legislation can automatically cause loans to become unrecoverable and statute barred.
2. Possibly implementing security arrangements in relation to the loan, for example, by way of mortgage or registering an interest under the PPSR.
3. Ensuring that each party to the loan receives independent legal advice. Particularly in relation to arrangements between family members, the failure to ensure each party receives independent legal advice can cause a loan to become unrecoverable on the basis that a court decides that the loan was in fact a gift.

The requirement for independent advice is arguably the most important aspect in family situations, such as parents lending funds to a child and their spouse.

If the child and spouse have a relationship breakdown it is likely that the funds advanced will be argued to be a gift by the estranged spouse, even if a loan agreement has been signed.

If the amount is treated as a gift it will be an asset of the relationship (not the parents as lenders) and thus unrecoverable by the parents.

** for the trainspotters the title of the post today is riffed from the early 1980’s and The Sunnyboys ‘Alone With You’, see them perform live! on Countdown here:

Shooting down** the difficulties with ‘fixed’ testamentary trust wills

As mentioned in last week’s post, it is possible to gain access to the excepted trust income provisions under the Tax Act where a will provides for the assets to be held on trust for infant children until they reach a certain age.

It is important to note however that, as compared a comprehensive testamentary discretionary trust, there can be a number of difficulties with the more basic approach including:

1. The assets of the trust will normally pass absolutely to the child beneficiaries on them attaining a certain age. Often this age will automatically be 18.
2. There is no real flexibility in terms of distributions of income or capital at any point during the structure. This can cause a number of difficulties particularly in relation to asset protection and tax planning.
3. The structure is very inflexible in terms of future estate and succession planning objectives and requires that the child beneficiaries implement comprehensive estate plans for themselves as soon as they gain entitlement to the assets.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Stone Roses song ‘Shoot you down’.

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Shining a light** on ‘fixed’ Testamentary trust wills

‘Simple’ or ‘I love you’ wills are normally a relatively straightforward document and traditionally provide for assets to be gifted directly to a surviving spouse and then if not to the children of the relationship on them reaching a certain age (e.g. 18, 21 or 25).

One issue that often comes up in relation to this type of will is whether the ‘excepted trust income provisions’ under the Tax Act can be accessed. These provisions allow children to be taxed at adult rates for income distributed to them via a deceased estate.

In very broad terms, the excepted trust income provisions can only be accessed via this type of will during the period that the infant children of the deceased (and, in particular, not grandchildren) remain under the age of 18.

Next week’s post will explore some of the difficulties with this type of will as compared to more comprehensive testamentary trust arrangements.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Rolling Stones song ‘Shine a light’.

View here: