The role of ‘infatuation’ in the negotiation of a financial agreement – some cases about undue influence and unconscionable dealing

A binding financial agreement, sometimes known as a prenuptial agreement, sets out the way some or all of a couple’s assets will be divided in the event that their relationship breaks down.

When a couple enters into a binding financial agreement, the terms of the agreement are important, as is satisfying the many technical and drafting requirements imposed by the Family Law Act and the cases.

What we also know from cases relating to binding financial agreements is that the courts also look closely at how parties actually behave themselves during the negotiation of the agreement.

What is undue influence and unconscionable dealing?

The equitable doctrines of undue influence and unconscionable dealing relate to how a person’s influence over another can lead to unfairness. If the court finds this conduct to have occurred, the financial agreement signed in those circumstances can be set aside.

Most people would probably accept that each spouse in a de facto or married couple has a unique influence over the other partner – from minor issues such as what to have for dinner or where to go on holidays to  major life decisions such as buying and selling property, starting businesses, having children and in this context, entering into a binding financial agreement.

However, the cases reflect that although an intense emotional element prevails in negotiations about a financial agreement in real life, the court will not find that there has been undue influence or unconscionable dealing, just because of the existence of an intimate personal relationship.

Rather, cogent and specific evidence will be required about how:

1. the judgement of the innocent party was substantially (and actually) affected as a result of the effect the other party’s influence had upon their free will, in the case of undue influence; or
2. the innocent party was at a special disadvantage that seriously affected their ability to make a judgement as to their own best interests, the other party took advantage of that disadvantage the other party knew or ought to have known of the special disadvantage, in the case of unconscionable conduct.

How do the courts apply these principles to binding financial agreements?

The courts have generally been quite strict in their application of these principles and largely kept people to their bargains.

Being in love, wanting to please the other person, keep the peace and having little practical bargaining leverage alone have not been considered as sufficient to justify a finding of conduct requiring the average financial agreement to be set aside.

This is excellent news if you are the wealthier party and there are lessons to be drawn from the cases whatever your circumstances.

In the case Saintclaire & Saintclaire [2015] FamCAFC 245 a wife alleged that the binding financial agreement between herself and her husband should be set aside for undue influence and/or unconscionable dealing.

A challenger of a financial agreement will commonly attempt to rely on both grounds.

The wife alleged that the agreement should be set aside because during its negotiation she had post-natal depression, she was in debt and the husband was abusive to her.

Nonetheless the court found that there was no evidence that suggested the agreement did not reflect the wife’s intentions or that there was a situation of pressure or unequal bargaining around the creation of the agreement. The court found that the husband did not have the ‘dominion or ascendency over her will’ that would have been necessary to defeat the agreement.

Repenting a poor deal when you have been given disclosure and had plenty of time to consider the agreement and propose changes and have had legal advice, is unlikely to save you from the deal you have struck.

In Gongsun & Paling [2020] FamCAFC 244, an 84-year-old and a 60-year-old entered into a de facto financial agreement which gave the penniless party a maximum of a 50% share in a house owned and brought to the relationship by the other spouse.

During the relationship that house was sold and all of the proceeds given to the other party to buy a property in her sole name, which under the terms of the agreement remained hers in the event of separation.

The de facto relationship ended when the 84 year old went into a nursing home and thereafter he challenged the agreement (originally written to protect him and give his partner only a 50% share) on both equitable grounds.

On appeal, the court found that undue influence was not made out as the giver was exercising his free (if not very prudent) will.

The agreement was struck down instead on the basis of the recipient’s unconscionable dealing because the innocent party’s infatuation with the other party and subsequent vulnerability amounted to a special disadvantage that affected his ability to make decisions in his own best interests. Furthermore, the other party’s passive acceptance of the benefit of his decision amounted to her unconscientiously taking advantage of the innocent party.

Perhaps gender and age played a part in this decision, as indeed will every couple’s personal circumstances and behaviour in the context of negotiating a financial agreement.

Lessons when entering into a binding financial agreement

These cases reinforce the need for parties to a binding financial agreement to think not only about the terms and documentation of the agreement, but also about the way in which they behave themselves during negotiations.

If you are contemplating a financial agreement or being asked to sign one, you are most welcome to contact the family law team at Cooper Grace Ward as it will be too late in most cases once the deal is done.