The recent Federal Circuit Court case of Parkes v Parkes [2014] FCCA 102 sheds light on this common practice.

It is increasingly common for couples with markedly different financial positions to enter into financial agreements (sometimes referred to as a pre-nuptial agreement or ‘pre-nup’) prior to marriage. However, extreme care needs to be taken to ensure that the timing of the signing of the agreement does not establish a basis for the agreement to be challenged and potentially set aside pursuant to section 90K of the Family Law Act.

In the case of Parkes v Parkes, the husband-to-be produced a completed financial agreement to his fiancée three days before their wedding. He told her that, if she did not sign the agreement prior to their wedding, it would be called off. She signed the agreement two days before the wedding and they therefore entered into a financial agreement in contemplation of marriage in accordance with section 90B of the Family Law Act.

The parties separated and the wife sought to have the agreement set aside.

At trial, it was not disputed that the agreement complied with all of the relevant requirements of the Family Law Actand was binding unless it could be set aside. The Court was required to determine whether:

  • the husband’s conduct in producing the agreement three days before the wedding was unconscionable; or
  • by advising the wife that the wedding ‘was off’ if she did not sign the agreement, his behaviour amounted to duress or undue influence.

For the agreement to be set aside on these grounds, the wife needed to establish that she was in a position of ‘special disadvantage’, which was known to the husband.

The wife was successful in arguing that she was in a position of special disadvantage for because:

  • the agreement was presumably given to her only three days before their wedding as her husband wanted to give her no choice but to sign the agreement;
  • she said in her evidence that she felt she had no choice but to sign the agreement;
  • if she failed to sign the agreement, not only would the wedding be cancelled but the likely outcome would be the end of their almost seven year relationship; and
  • the agreement was to the advantage of the husband and it gave her no rights in the future to any of his property.

In these circumstances, Judge Phipps found that the wife’s consent was not independent and voluntary because it was overborne and, therefore, she was subject to duress and undue influence.

Further, it was determined that, even if her consent had been independent and voluntary, the circumstances meant that the husband was dealing with a person under a special disadvantage in circumstances where it was not consistent with equity or good conscious to do so. The requirements for unconscionable conduct were therefore also satisfied.

This case highlights that, although a financial agreement may technically be binding, the circumstances in which it was entered into may give rise to a finding that it be set aside.

This reinforces the importance of obtaining legal advice from an experienced family law practitioner at an early opportunity and well before any milestone dates  such as the wedding day (for married spouses) or the date of cohabitation (for de facto spouses).

If you are considering entering into a financial agreement with a current de facto partner or spouse, we can advise you of your legal rights and obligations and how to best avoid your agreement later being set aside.