Reliability of Prenuptial Agreements questioned after High Court ruling


prenuptial-agreementThe High Court has this morning set aside their prenuptial agreement in a landmark ruling in Thorne v Kennedy, a decision that lawyers warn will open the doors to fresh legal challenges by other former spouses.

This High Court decision was pre-ceded by the original decision in the Federal Circuit Court, Thorne & Kennedy [2015] FCCA 484, and the following appeal in the Full Court of the Family Court, Kennedy & Thorne [2016] FamCAFC 189.

The couple met online in 2006 on a “website for potential brides” when the husband was 67 and she was 36.

“At the time, Ms Thorne, who was an eastern European woman, was living in the Middle East. She was 36 years old. She had no substantial assets,” five of the seven judges, including Chief Justice Susan Kiefel, said in a joint judgment.

The husband, known as Mr Kennedy, had assets of at least $18 million. He was divorced from his first wife and had three adult children.

Soon after he met the wife online, he told her that if they married, “you will have to sign paper. My money is for my children.”

However, this morning the High Court unanimously set aside the binding financial agreements they signed before and after the wedding because they were the result of “unconscionable conduct”. A majority of judges also said the wife, known as Ms Thorne, signed the agreements because of “undue influence”.

The judges agreed that she was “powerless” and had “no choice” to act in any way other than to sign the prenuptial agreement.

About 11 days before the wedding, Mr Kennedy told Ms Thorne if she did not sign a binding financial agreement the wedding was off. By that stage, her parents and sister had travelled to Australia for the wedding and were also staying at the husband’s home.

An independent lawyer advised Ms Thorne not to sign the agreement because it was drawn solely to protect his interests. She understood it was the worst agreement the solicitor had ever seen, but signed it anyway.

She told the court this was because she was dependent on Mr Kennedy and believed she had no choice. She signed it four days before the wedding.

The agreement said the wife was to receive a total payment of $50,000 adjusted for inflation in the event of separation after at least three years of marriage. It also provided for the wife to receive a penthouse worth up to $1.5m, a Mercedes and continuing income, in the event the husband died prior to either party signing a “separation declaration”.

The couple separated after living together for about four and a half years. They had no children.

The husband died in 2014 and was substituted in the litigation by the executers and trustees of his estate, who were two of his adult children.

The Federal Circuit Court set aside the agreements, finding that they were signed “under duress born of inequality of bargaining power where there was no outcome to her that was fair and reasonable”.

However, the Full Court of the Family Court of Australia ruled the agreements were binding, and said there had not been duress, undue influence or unconscionable conduct on the husband’s part.

The High Court this morning disagreed. It said the primary judge’s conclusion of undue influence was open on the evidence and it was unnecessary to decide whether the agreements could have also been set aside for duress.

The case will now be sent back for the Federal Circuit Court to decide how the property pool should be divided between the two.

She had sought orders for $1.1 million plus a lump sum spousal maintenance order of $104,000.

Prominent family lawyer Paul Doolan said the decision was likely to lead to further challenges to binding financial agreements by others.

“The decision of the High Court will likely open the door to many other applications being made in future to challenge prenups,” he said.

He said when looking at whether prenups and postnups could be set aside, the High Court had said that relevant factors may include whether the agreement was said to be non-negotiable, the emotional circumstances when it was made including any threats to ‘sign the prenup or the wedding’s off’, whether a party was given time for careful reflection before it was signed, and the independent legal advice received and how long they had to reflect on it.

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Tax Liabilities and Divorce

Tax liabilities may not rank highly in the heat of a divorce but when a couple splits assets – particularly property – there are tax hurdles that many people don’t expect but can still come back to bite.

For parting couples who own investment property, a practical and often easy solution is for one party to move out of the family home into the investment flat. It’s in a familiar location, it saves rent and is often already furnished with the owners’ furniture.

And if it’s no longer an investment but a residence, it’s no longer taxable, right?

Wrong. Even if such a property turns into a permanent residence, it can never shed the consequence of having been an investment in the past, says Les Stubbs, head of family law at commercial firm Harris Freidmann.


“If you own an investment property then on disposal you’re liable to pay capital gains tax on your property,” Stubbs says. “The fact that you move into and occupy an investment property doesn’t change it from being taxable to being non-taxable.”

The rules have always been the same, but divorces between older and longer-married couples – the ones likely to have more assets – are growing. Breakups among older couples rose to their highest-ever level in 2016, having nearly doubled over the past 35 years, ABS figures last month showed.

Older couples splitting

The overall divorce rate slipped to 1.9 per cent of the married population last year, continuing a trend that has seen it fall from 2.9 per cent in 1996. While divorce rates have stabilised in the past 15 years among the 45-to-49 cohort and fallen in the younger age groups – possibly because fewer people are getting married at those ages – divorce has increased among women and men in the older age groups.

For men in the 55-59 age range, the divorce rate jumped to 10.1 per cent last year from 5.4 per cent in 1981. For women in the same age cohort, the rate also rose over that 35-year period from 4.1 per cent to 7.9 per cent.


“The median age for divorce continues to rise for both husband and wife,” says Lixia Qu, a demographer with the Australian Institute of Family Studies. “If you look at the durations, the divorces involving marriages of at least 20 years – especially those really longer, like 30 years of marriage – continue to rise.”

The trend of older divorces – when people are generally wealthier – coincides with a growing level of sophistication in investments since the 1980s economic reforms that turbocharged the Australian economy. Law firm Harris Friedman estimates there are around 2 million Australians who own one investment property.

“They’re really more ‘First World’ problems people didn’t have to deal with in the old days,” Stubbs says. “In our parents’ day, people had a house, a car, a joint bank account and probably didn’t have much else.

“As time’s gone by there have been new things like share portfolios and SMSFs that never existed. We didn’t have compulsory super until 1989. Then there’s the diversification of investments into investment properties, multiple investment properties – and the question of what you do with those investment properties.”


Tax liabilities

The liabilities between ex-partners can vary greatly. Consider this simplified example of a fictitious couple emerging as two singles from the rubble of a collapsed relationship.

James and Lisa purchased an investment flat in both their names five years before their relationship breakdown for $500,000. When they split, James moved into the unit and lived in it for a year before the former couple sold it for $1.2 million.Accountant

On the surface, each gets $600,000 back from the sale and has a CGT cost base of $250,000 (in this example we have used just the purchase price but usually legal fees on purchase and sale, selling agent’s commission and stamp duty on the purchase would be added to the cost base.). That gives both James and Lisa a gross capital gain of $350,000.

But at this point their tax liabilities part ways.

“If James never moved in and it was just an investment property and they had it as an investment and their separation or divorce went through and they sold it, then the calculation would be simple,” says Peter Bembrick, a tax partner at HLB Mann Judd.

James gets a reduction on his CGT liability that Lisa doesn’t because he lived in the property.

Less CGT

The value of his taxable capital gain is cut by one-sixth as the unit was his permanent residence for one out of the six years it was in their joint ownership. The tax liability on what was an investment property is never extinguished. It simply reduces over time the longer it is lived in.

“You’ll always have that period where it’s been an investment property therefore there will be some element of the gain which is taxed,” Bembrick says.

In our example, this cuts James’ capital gain by $58,333 to $291,667 while Lisa’s remains at $350,000.

The gap between the two is reduced, as this calculation happens before – not after – the 50 per cent CGT reduction on investment properties (if held for more than a year) is applied. This means James’s net taxable capital gain is $145,833 while Lisa’s is $175,000 – a difference of $29,167.

“The 50 per cent discount dilutes the benefit of the reduction,” Bembrick says.

But James still benefits. Assuming both of them earn $150,000 a year and have private health insurance, says Bembrick James pays CGT of $66,141.51 while Lisa pays $79,850. That’s a difference of $13.708.49. (These calculations include the 2 per cent Medicare levy.)

This example is necessarily simple. It doesn’t include other deductions or taxes that could apply such as land tax.

But unless these issues are thought through at the time, the implications for separating couples can be far-reaching.

Land tax

Stubbs tells of one client, previously part of a Victorian couple with children who moved overseas for his work. When they left Australia, the couple rented out the family home and three investment properties they owned.

After some years overseas, the couple separated. The wife returned to Australia with the children and they moved back into the family home. Some time later the husband was transferred back to Australia and he moved into one of the investment properties.

Then the Victorian State Revenue Office levied him for land tax on the house that the wife had moved back into with the children.

“Although he wasn’t living in the home, because they had rented it out while they were away, it stopped being their primary residence and became an investment property,” Stubbs says.

His client argued that it shouldn’t be the case. The revenue office was unmoved, stating that as the house was in his name, he got the land tax bills.

He kept paying the land tax on the house – which cost “some thousands” of dollars – for the next four years while his ex-wife stayed there with their children while they completed high school, Stubbs says.

“He said: ‘You’re living in the house so you should pay it and she said ‘Bugger off’. That happens.”

The house is due to be sold at the end of this year, at which point it will also incur a CGT liability.

Taxes on property for divorcing couples are fraught with difficulty and often the last thing they consider, especially when there are more pressing matters such as children and a roof overhead.

“A lot of people aren’t necessarily planning a year or a month in advance to separate. It can happen quickly,” Stubbs says.

But there is a lot to consider, he says. “If they don’t, those consequences could be hanging around their neck for a long time to come.”

Family Court judge blasts lawyers over outrageous fees


A Family Court judge has delivered a blistering judgment on the “culture of bitter, adversarial and highly aggressive family law litigation” in Sydney and blasted two law firms for charging “outrageous” fees.

In a judgment published on Wednesday (Simic & Norton [2017] FamCA 1007), Justice Robert Benjamin said he regularly heard cases filed in the Sydney registry of the Family Court and was “increasingly concerned about the high levels of costs charged by the legal profession in property and parenting proceedings”.

He asked the Legal Services Commissioner to investigate whether the fees charged by the solicitors acting for a former couple fighting over parenting arrangements and property could constitute professional misconduct.

Justice Benjamin said the couple, given the pseudonyms Mr Simic and Ms Norton, had spent an “eye-watering” $860,000 in the proceedings and “these amounts are, on their face, outrageous levels of costs for ordinary people involved in family law proceedings”.

The Hobart-based judge took aim at the “win at all costs, concede little or nothing, chase every rabbit down every hole and hang the consequences approach to family law litigation” he had observed in Sydney and the culture of “bitter, adversarial and highly aggressive family law litigation”.

It was unclear whether this approach was “a reflection of a Sydney-based culture” or an approach by some lawyers or a combination of both, Justice Benjamin said.”Whichever is the cause, the consequences of obscenely high legal costs are destructive of the emotional, social and financial wellbeing of the parties and their children. It must stop,” he said.

The scathing comments come amid an Australian Law Reform Commission review of the Family Law Act, commissioned in September by Attorney-General George Brandis. The review will include a consideration of whether reforms are necessary to promote the “appropriate, early and cost-effective resolution” of family law disputes.Justice Benjamin asked the Legal Services Commissioner to investigate whether the fees charged in the case before him were fair and reasonable, as well as whether the legal work undertaken was necessary and performed in a “reasonable manner”, taking into account the proceedings were launched “on behalf of otherwise unsophisticated parties … and in highly emotional circumstances”.

Justice Benjamin said he had read “each and every one” of the letters sent by the parties’ lawyers and some of them were “inflammatory and reflected the anger of the parties or one or other of them”.” lare not employed to act as ‘postman’ to vent the anger and vitriol of their clients,” he said.Justice Benjamin said lawyers had “a duty to minimise costs and to reduce conflict” and “some of the communications appear to add ‘fuel to the fire’ of conflict rather than dampen it down”.”The children of these parties depend upon the income and assets of their parents to support them,” he said.”Yet, in this case, the costs of the proceedings have taken a terrible toll on the wealth of the parties and consequently their ability to support and provide for their children.

“He anonymised the names of the law firms on the basis the solicitors should not be punished by the negative publicity if the Legal Services Commissioner did not make a finding of misconduct.The parties’ barristers were not the subject of criticism and Justice Benjamin said he was not provided with details of their fees.

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Perth couple the first in Australia to file for same-sex divorce


Barrister Teresa Farmer and solicitor Maria Loukas were approached to investigate whether divorce was possible.

New same-sex marriage legislation came into effect on the weekend, prompting a rush of couples heading to registry offices around the country to file their intention to marry.

But in Perth, lawyers were lodging documents of a different kind, on behalf of a woman set to become the first in Australia to file for a same-sex divorce.

She married her long-term partner in 2015 at a consulate in Perth under the laws of a European country where same-sex marriage was already legal.

But things did not work out and the pair separated.

The woman quickly realised getting a divorce would be far more complicated for them than for a heterosexual couple.

She engaged solicitor Maria Loukas and barrister Teresa Farmer to investigate whether it was possible at all.

“The difficulty for this particular couple was having married under legislation of a European country, they couldn’t access the divorce system in that country because they weren’t residents in that country, neither of them were,” Ms Farmer said.

“They were very much caught with no other option.”

Ms Loukas said being stuck in a marriage she did not want to be in had caused her client a great deal of angst.

“For her it’s been about not being able to move on with her life,” Ms Loukas said.

“It’s been about not being able to tidy up the end of something to be able to start fresh somewhere else.

“She’s been held back in many ways.”

In August, the United Nations Human Rights Committee found that a couples’ inability to divorce in Australia violated international human rights obligations.

But the amendments to Australia’s marriage act, that passed through the Parliament last week, meant that the couple’s union was instantly recognised in their home country, and so was their eligibility to file for divorce.

“They’re no different to any other married couple and there will be a rate of failed marriages,” Ms Farmer said.

“But had Australia not changed the law, I don’t know what would have happened for this couple.

“It’s a shame it’s taken as long as it has but it provides an equality for all married couples on all bases, so it’s important.”

Lance Tapsell has been a marriage celebrant for 10 years and has officiated a number of same-sex civil unions in that time.

He is hopeful divorce rates between same-sex couples will be lower than their heterosexual counterparts.

“I’d like to hope there wouldn’t be a large take up of that but it’s like a lot of partnerships or relationships; something sours and people move on and that’s just part of life in the 21st century, I guess,” Mr Tapsell said.

“I think that gay couples would probably take their wedding or marriage a lot more seriously because they had to fight so hard to get it.”

New domestic violence laws to target men who unwittingly breach restraining orders

domestic-violenceMen who unwittingly breach personal protection injunctions, even if coerced or invited to by their spouses or ex-spouses, will face up to two years in jail, and no longer be able to rely on the defence that they were invited over, or on drunkenness.

Parents locked in bitter disputes about the custody of their children will also be able to access an out-of-court resolution scheme to be trialled in Parramatta from next year.

The changes introduced by the Turnbull government on Wednesday aim to reduce the number of families forced to straddle state and federal court systems to protect themselves from violence.

Family Court injunctions differ from apprehended violence orders, which are administered in the state courts. Currently, they can only be enforced if an ex-partner pursues potentially costly legal action.

Under the new laws, police will no longer need a warrant to arrest someone who breaches such an injunction, and offenders could be jailed for up to two years and fined up to $25,000.

“This sends a strong message to the Australian community – family violence is not a private matter, it is criminal behaviour,” Attorney-General George Brandis said.

Self-inflicted drunkenness, a common factor in domestic violence and breaches of restraining orders, will not be a defence to the new crime.

Victims of domestic violence will also not be held liable for actions they may have taken in encouraging or causing former partners to breach an injunction.

The changes were urged by the Australian Law Reform Commission and strongly supported on Wednesday by the Law Council of Australia.

“It’s a positive step. It’s about empowering police to step in,” LCA president Fiona McLeod said. The current system was so deficient that police were not necessarily even aware an injunction had been taken out, she said.

The change would especially benefit thousands of people currently appearing unrepresented in family courts, Ms McLeod said – for example, those seeking an urgent injunction to prevent a child being removed from school without their consent.

Separately, the government will legislate for a $12.7 million trial of Parental Management Hearings – an out-of-court mechanism to settle disputes over children.

Senator Brandis said the scheme would “take the lawyers out of the system” and will instead let parents put their case to a panel of social workers, family violence specialists and psychologists, who are empowered to make binding decisions about custody. The pilot will begin in Parramatta in mid-2018 and at another location later that year.

The notoriously overburdened Family Court system is in the government’s sights for reform. Senator Brandis has moved to turbocharge that process by appointing John Pascoe as chief justice, who will oversee reforms until his mandatory retirement in 12 months when he turns 70.

This week the Labor opposition announced it would legislate for 10 days’ paid domestic violence leave to be built into the mandatory national employment standards.

Brisbane man found not guilty of father’s assisted suicide

Australian man found not guilty of assisted suicideA Brisbane builder accused of helping his frail and elderly dad to kill himself has been acquitted by a jury.

Peter John Nixon, 59, from Petrie, stood trial for the past four days accused of assisting his retired firefighter father John Stephen Nixon, 88 to commit suicide in April 2015, telling him “Dad this will just help you go to sleep”.

The jury deliberated for one hour and 40 minutes and returned their verdict in the Supreme Court of Queensland in Brisbane just after 2.50pm today.

Prosecutor Danny Boyle alleged that Nixon Jnr dissolved the pain relief drug oxycodone and sedative diazepam into a bottle of soft drink in 2013 and kept it in the fridge, then gave the cocktail for his father to drink two years later.

Mr Boyle told the jury in his closing address on Monday that Nixon had lied to doctors after his father was admitted to hospital after drinking the cocktail on April 27.

Mr Boyle said Nixon Jnr told doctors he believed his father had consumed a tablet related to valium, and for three days didn’t disclose that he had also consumed oxycodone.

The forensic pathologist who carried the autopsy on Nixon Snr last week told the jury that he had “no doubt” that pain medication oxycodone “played a role” in inducing John Stephen Nixon’s “mixed drug toxicity”, which was the underlying cause of his death on May 9, 2015.

But Nixon Jnr’s defence barrister Dean Wells told the jury there was no way of proving beyond reasonable doubt the prosecution claim that oxycodone was to blame for Nixon Snr’s death.

He said the prosecutors “causal chain has a missing” link because they could not prove that Nixon Jnr’s actions in giving his father the soft drink laced with pills was a trigger for the mixed drug toxicity.

He said Nixon Snr died from aspiration pneumonia and not from a drug overdose, so Nixon jnr cant be to blame.

“Two doctors say he may have had the aspiration pneumonia before he went to hospital,” Mr Wells told the jury.

In his closing address Mr Boyle said Nixon Jnr had not “planned” to help his father kill himself that day, but he had a mental “shift” when seeing his father sitting in a taxi.

“Obviously it’s a sad case and you may have feelings of sympathy for him,” Mr Boyle said. “But his desire to give his father a dignified death is not a defence.”

Mr Wells told the jury in his closing address that his client must be acquitted because he never intended to help his father kill himself, he was only trying to get his father to sleep so he could have a valid reason to take him to Prince Charles Hospital in Chermside without upsetting nursing home staff.

“He would not have minded if he died, he wouldn’t have minded if he got sweet release, but he did not intend it,” Mr Wells said.

Mr Wells said statements Nixon Jnr made to the police on May 1, 2015, which prosecutors allege were confessions, were not because Nixon Jnr didn’t understand the law and mistakenly believed he was guilty during a police interview which was “sprung on him” by surprise.

 “It is what he has actually done that counts,” Mr Wells told the jury.

“You have to decide whether he has done it with the necessary intent,” he said.

“If there is going to be a life hereafter in that life John will embrace Peter as a most loyal and devoted son,” Mr Wells said.

“But … if the only life Peter is going to get is this one, and if the only justice he is going to receive is yours, then I suggest there is abundant evidence on which you can set him free, so he can go home to the loving arms of his family and let John Nixon rest in peace.”