Do prenups have a future?

Since December 2000, parties to a relationship have been able to enter into what we commonly call a prenup. The intention being that it would be binding on them in the event their relationship came to an end and it would therefore avoid going to the Family Court for a property settlement order.

On 8 November, 2017 the High Court, in the case of Thorne v Kennedy [2017] HCA 49, gave careful consideration to a prenup and a postnup and in both instances determined that the agreements should be set aside on the basis of undue influence and unconscionable conduct.

The circumstances, I think, compelled the expectation that the Court would do what it did. However, there has been commentary to the effect that the judgement signals the death knell of prenups. I think such a view is premature.

The care that we need to take in preparing these documents is, of course, very high but I also think the judgement itself gives some good guidance on the matters that need to be uppermost in a practitioner’s mind when embarking on the effort to provide clients with a binding agreement.

At paragraph 60 of the judgement, in relation to undue influence, the majority identified factors that would play into a consideration of whether undue influence had been applied. They were as follows:

  1. Whether the agreement was offered on a basis that was not subject to negotiation;
  2. The emotional circumstances in which the agreement was entered into, 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 position of the parties;
  6. The independent advice that was received; and
  7. Whether there was time to reflect on that advice.

Earlier on in the majority judgement there was another interesting remark made at paragraph 56 to the effect that – if the prenup or postnup agreement is signed despite being known to be grossly unreasonable even for agreements of this nature – it was some indicia of undue influence.

In summary, Thorne v Kennedy is, I believe, an extremely important case and I’m sure that those involved in preparing prenups will read it with considerable interest. I think that what the Court will be looking at – to determine whether these agreements are valid or not – is signposted in the case to a significant degree.

I commend a reading of it to all involved in this aspect of estate planning.

Dr John de Groot.