Einstein’s prenup: … and holidays in Malibu**(?)

Previous View posts have looked at various cases where a binding financial agreement (BFA) has been held to be ineffective.

BFAs can be entered into at the start of a relationship (that is, a traditional ‘prenup’), at any time during the relationship (‘midnup’) or once the relationship has ended (‘postnup’).

While we see BFAs add value as prenups and postnups, perhaps understandingly we see few midnups successfully assist. Indeed we are aware of many situations where one spouse raising the idea of a midnup has been a catalyst for the ending of the relationship.

One of the highest profile examples of this is given by Albert Einstein.

According to biographer Walter Isaacson, as Einstein and his wife Mileva’s relationship deteriorated, they decided to try and stay together for the sake of their children.

Part of Einstein's approach involved him setting out a list of 'conditions' his wife needed to accept in writing (ie a form of early 20th century ‘midnup’), as follows:

A. You will make sure:

1. that my clothes and laundry are kept in good order;
2. that I will receive my three meals regularly in my room;
3. that my bedroom and study are kept neat, and especially that my desk is left for my use only.

B. You will renounce all personal relations with me insofar as they are not completely necessary for social reasons.

Specifically, you will forego:

1. my sitting at home with you;
2. my going out or travelling with you.

C. You will obey the following points in your relations with me:

1. you will not expect any intimacy from me, nor will you reproach me in any way;
2. you will stop talking to me if I request it;
3. you will leave my bedroom or study immediately without protest if I request it.

D. You will undertake not to belittle me in front of our children, either through words or behaviour.

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 Hole song ‘Malibu’.

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Right by your side** - Key rules for when a prenup will fail

Previous View posts have looked at various cases where a binding financial agreement (BFA) has been held to be ineffective.

The case of Hoult v Hoult (2013) 276 FLR 412 arguably provides the best summary of the key rules in this regard.

In considering whether the wife could avoid the terms of a BFA due to not having received independent advice the court confirmed -

1. the parties need only have received independent legal advice on the document before the BFA will be assumed to be valid - the utility or content of the legal advice and indeed whether it was even understood are not relevant issues in determining whether the test is met;
2. the certificate of advice issued by each lawyer will generally be sufficient evidence that advice has been given, unless the resisting party can show evidence that creates doubt about the conclusion that would otherwise be drawn from the certificate.
3. if a party can show that there is a legitimate issue as to whether independent advice has been given then the onus of proving that the advice was in fact given is effectively 'reversed' and it is the task of the party wanting to have the BFA upheld who must satisfy the court. This is because the legislation provides that a BFA is binding 'if, and only, if' the listed requirements are all proved.
4. therefore the party to a relationship wanting to rely on a BFA must establish the existence of all required matters.

Similarly, in the case of Warrick and Mia [2018] FamCA 426, a provision which stated 'the assets and personal effect (sic) which are held in both parties’ names acquired after the marriage shall be property of both parties and should be divided between the parties on a contribution basis' was held to be so unclear that it was unenforceable; making the entire agreement also void.

This was because the phrase was an operative term and it was impossible based on the way the document was drafted to determine if 'contribution' related to non-financial as well as financial aspects.

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 Eurythmics song ‘Right by your side’.

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BFA’s - What does the High Court decision mean (to me)**?

As mentioned in last week’s post, the key issues undermining the validity of the BFA in this matter related to the conduct of the husband and the existence of unconscionable conduct and (by majority) undue influence.

Unconscionable conduct was summarised as follows:

‘a special disadvantage may also be discerned from the relationship between parties to a transaction; for instance, where there is ‘a strong emotional dependence or attachment’ … Whichever matters are relevant to a given case, it is not sufficient that they give rise to inequality of bargaining power: a special disadvantage is one that 'seriously affects' the weaker party’s ability to safeguard their interests.’

Undue influence is said to occur when a party is deprived of ‘free agency’ in entering into an arrangement. In other words, when there is something so strong that the influenced party is under the belief that while the document is not what they want, they feel compelled to sign it anyway.

The High Court listed the following six factors (noting that they are however not exclusive) relevant in assessing whether there has been undue influence in the context of BFAs:

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 explicit or implicit 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.
6. The independent advice that was received and whether there was time to reflect on that advice.

Admittedly, with the benefit of hindsight, arguably, the case does not significantly change the position in relation to the effectiveness of BFAs.

Indeed, the agreement may well have been held to be valid if some of the basic recommendations featured regularly in these posts were embraced.

In particular, if the arrangements had been put in place earlier in the relationship or at least not so approximate to the wedding, that would have increased the robustness of the agreement.

Similarly, if steps were taken to ensure that the independent lawyer was able to endorse the appropriateness of the agreement by way of a collaborative negotiation, then it would have almost certainly been the case that the arrangements would have been upheld.

This said, BFAs remain a stark reminder of a key asset protection mantra, that being the need to 'measure twice and cut once' if there is a desire for the arrangement to be enforceable.

** for the trainspotters the title of the post today is riffed from 1986 and Crowded House’s ‘Mean to Me’ see:

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: