Feature

posted 9 Oct 2002 in Volume 7 Issue 6

The assessment of quantum in Inheritance Act claims

The position of the surviving spouse in relation to Inheritance Act claims can be tricky and there has been some debate as to how to best proceed in deciding the amount that should be awarded following the death of a partner. Sidney Ross, a barrister at 11 Stone Buildings, continues his two-part article to consider surviving spouse cases that have passed through the courts since White v White.

Equality in surviving spouse cases The position of the surviving spouse in relation to Inheritance Act claims differs from that of other applicants in two ways, namely:

(a) Section 1(1)(a) of the 1975 Act provides that reasonable financial provision is such financial provision as it would be reasonable in all, the circumstances for a husband or wife to receive, whether or not that provision is required for his or her maintenance¹;

(b) Section 3(2) directs the court to have regard to the provision which the applicant might reasonably have expected to receive if on the day on which the deceased died, the marriage, instead of being terminated by death, had been terminated by a decree of divorce².

The section 3(2) debate

The s.3(2) requirement has provoked a variety of judicial reaction. At one end of the spectrum is the view expressed by Oliver LJ in Re Besterman [1984] Ch 458, where, at 469F, he drew attention to the two different exercises that the court has to carry out under the matrimonial and the family provision legislation and stated that, in an application under the 1975 Act, the figure resulting from the s.25 exercise was merely one of the factors to which the court must have regard and the overriding consideration was what is reasonable in all the circumstances.

At the other is Moody v Stevenson [1992] Ch 486, in which Re Besterman was not cited. Waite J said, at 498F that, although that requirement had been criticised because of the mental gymnastics that it is liable to impose on the court, the underlying purpose of parliament seemed plain enough. The objective was that the acceptable minimum posthumous provision for the surviving spouse should correspond as closely as possible to the inchoate rights enjoyed by that spouse in the deceased’s lifetime by virtue of his or her prospective entitlement under the matrimonial law. Consequently, the court’s logical starting point would be an appraisal of the claimant’s notional entitlement under the relevant matrimonial legislation.

In Re Jessop [1992] 1 FLR 591 CA, Nourse LJ felt it unnecessary to enter upon any conflict between those two decisions, but in Re Krubert [1997] Ch 97, at 104C, he did consider that there was a conflict between them, even if it was only one of emphasis, and preferred the approach of Oliver LJ, which he felt to be more in accordance with the Act when read as a whole. Cazalet J agreed, observing at 106C-E that, particularly in small asset cases, the result of placing too much emphasis on the award which would have been made on the hypothetical divorce was that, where the spouses are living together at the date of death, such an approach might produce financial provision below reasonable financial provision within the meaning of the Act. That would happen because the funds available could not provide satisfactorily for two homes as opposed to one and support the couple living apart; but in claims under the 1975 Act the entitlement that the deceased would have obtained or received on divorce could be brought into consideration as potentially available to ensure that reasonable financial provision could be made for applicants under the Act.

Equality before White

In Re Bunning [1984] Ch 480 Vinelott J considered that in all the circumstances the court might have regarded £36,000 as the maximum provision that the husband could fairly have been ordered to pay and as the appropriate figure. He did not regard that as limiting the provision that it was reasonable for the wife to have and concluded that the right figure was £60,000. In doing so he had borne in mind:

The matters specifically mentioned in s.3(2);
The fact that W was comparatively young (55) and was entitled to a reasonable degree of financial security during what was likely to be a lengthy widowhood;
The fact that the husband’s assets had been largely built up by his own efforts before he married; the court should not interfere with his right to dispose of those assets by his will except in so far as it was necessary to make reasonable provision for W.

Although unable to demonstrate by any process of deductive reasoning that £60,000 was the right figure, he felt it to be confirmed in three ways, one of which was that it would produce a roughly equal division of their combined resources (see table one below).

Table 1

The “equality” calculation in Bunning

Net estate	226,000
Accrued interest and dividends	11,000
Costs of litigation		26,000
Available for distribution	211,000
Wife’s assets (substantially given to her by her husband)	95,000
Total	306,000
Half of which is	153,000
Less wife’s assets		95,000
Amount required to bring wife’s assets up to half the total	58,000
Amount awarded	60,000

The same approach was used in the unreported case of McNulty v McNulty³, discussed below.

The impact of White on awards in surviving spouse cases

The following cases have been decided since White v White:

Parish v Sharman [2001] WTLR 593, CA 15.12.00
Adams v Lewis [2001] WTLR 493 26.1.01
Singer v Isaac [2001] WTLR 1045 16.3.01
Grattan v McNaughton [2001] WTLR 1305 20.6.01
Gandhi v Patel [2002] 1 FLR 60331.7.01
McNulty v McNulty (unreported) 22.1.02

Of these six cases (all except the first of which were heard in the Chancery Division), the applicant failed in two. In Gandhi v Patel it was held that the marriage ceremony entered into by the parties neither complied nor purported to comply with the requirements of English law and was neither a marriage nor a void marriage entered into in good faith so that s.25(4) of the 1975 Act applied; it was a non-marriage.

In Parish v Sharman, the Court of Appeal affirmed the decision of the Circuit Judge who had dismissed the claim. The parties married in 1967 and the applicant issued a divorce petition and a decree nisi was pronounced on 28 August 1985. It was never made absolute and the applicant made no application for ancillary relief. In effect, as was found, the parties went their separate ways. The deceased died in 1996 leaving net estate £173,000, which went mainly to the woman with whom he had been cohabiting since 1988. The judge concluded that, if the marriage had terminated by divorce on the day of the deceased’s death, it was not likely in the circumstances that the court would have ordered any further transfer of capital to the applicant. By her delay [that is, in never applying for ancillary relief] the applicant had lulled the deceased into a false sense of security that their financial affairs had been settled once and for all. On that ground, coupled with the unreliability of her evidence on a number of material factors, the claim was dismissed.

The application of White in recent cases

It is difficult to extract any generalisation about the application of White from so small a sample. Further, in Grattan v McNaughton, the judge considered that there was not enough evidence before the court for the s.3(2) exercise to be carried out.

In Singer v Isaac the court declined to apply White on the ground that the claimant could not reasonably have expected equal division on a divorce in August 1999, some 14 months before the House of Lords’ decision, but only a determination based on the then subsisting conventional approach to such cases. The Master reminded himself that:

The test of reasonable provision was not identical to, or to be equated with the test applied by the divorce courts when granting ancillary relief;
On divorce, resources have to be divided between two spouses, whereas under the 1975 Act provision has only to be made for one spouse;
The competing interests were not those of the spouses but of the claimant and the beneficiaries.

The Master was satisfied that any apparent want of parity between the provision which he contemplated and that available on divorce did not reflect or indicate that the contemplated provision was incorrect.

In McNulty v McNulty, it was argued for the claimant that her marriage to the deceased was a long and happy one, in which she played her full part in bringing up the family, and she also assisted in the partnership business for the first seven years of the marriage by doing the clerical work, and that it was reasonable to suppose that the court would have awarded her half the family assets in the light of the guidance given in White.

Accepting, as did Vinelott J in Re Bunning, that it was impossible to show by any deductive process that the sum he proposed to award was the right figure, the judge gave three reasons for believing that the award was pitched at about the right level:

The award, added to the value of the land comprised in the residuary estate, would produce a capital fund amply sufficient to provide an income and meet any reasonably foreseeable contingencies;
It would enable her to share in the realised value of other land comprised in the estate which had greatly increased between the date of death and the date of the hearing;
A White v White cross-check was carried out (see table two below). This gave an amount significantly lower than the award but the discrepancy was justified because, on death, when there was only one party to provide for, it would often be appropriate under the 1975 Act to make an award greater than would have been made on the notional divorce.

TABLE 2

The White v White cross-check in McNulty

Net estate	590,000
Consisting of
Cash (estimated)(a)	400,000
Matrimonial home	120,000
Other jointly owned assets	5,000
Land comprised in residuary estate	65,000
Total	590,000
Half of which is	295,000
Less wife’s assets		190,000
Amount required to bring wife’s assets up to half the total	105,000
Amount awarded	175,000

(a) The CGT liability on the realisation of land owned by the partnership was uncertain. On the most favourable assumption the cash in the estate would amount to about £430,000, on the least favourable, about £313,000.

In Adams v Lewis the judge found himself largely in agreement with the submission that on divorce the applicant would have been awarded half the estate and there was no reason to depart from the principle of equality. He took the view that the provision she would have received on divorce was a most important factor and that if one concentrated too much on her ‘needs and resources’ there was a danger of blurring the

distinction between ss.1(2)(a) and (b) of the Act. He identified the following observations of Lord Nicholls and considered that they applied equally to 1975 Act cases:

If in their different ways the parties each contributed equally to the family then in principle it does not matter which of them earned the money and built up the assets;
A judge should check any tentative view he forms against the yardstick of equal division. As a general guide, equality should only be departed if and to the extent that there was a good reason for doing so;
The test of ‘reasonable requirements’ was inappropriate;
In principle a wife’s wish to have money so that she can pass some on to her children is every bit as weighty as a similar wish by the husband.

On the facts, the judge concluded that the parties’ contributions to the marriage were equal. He ran the business, in which she did not assist; she kept the house and brought up the 12 children of the marriage. He found no reason for departing from equality. In particular, he found that there was no moral obligation or responsibility to any of the other beneficiaries of the estate; they were all grown up, leading their own lives and in no way dependent on him. Three of them gave evidence of their financial position and while none of them were well off, none of them had needs that would counterbalance those of the applicant or justify the court giving them preferential treatment over any other beneficiary (see table three below).

TABLE 3

Summary of information in post-White surviving spouse cases where awards have been made

Case	Adams	Grattan	Singer	McNulty
Age of spouse	86	69	60	77
Duration of marriage	54	9(a)	11(a)	37.5
Net estate	£248,000(b)	£80,000(c)	£1,580,000(d)	£465,000
Provision by will (e)	£10,000 and provision and upkeep of residence	Occupation of matrimonial home subject to restrictions (f)	Life interest in £100,000 subject to conditions	Annuity of £7,800 Residue of estate (ca £65,000)
W’s property	None	£21,553 +£136 per month (g)	Matrimonial home, value £625,000. Pension income £19,000 pa (h)	Matrimonial home, value £120,000; other joint property, value £5,000
Competing beneficiaries	11 children of marriage + issue of 1 child who predeceased H	2 children of H’s previous marriage	2 children of H’s previous marriage	2 children of parties’ marriage
Award	Matrimonial home, value £173,000; legacy reduced to £5000	Balance of residuary estate (£16,000 less administration costs). Restrictions on occupation removed	£225,000	£175,000
White applied?	Yes	No	No	Used as a cross-check

(a) The applicant was the second wife of the deceased;

(b) This figure does not take into account an increased valuation of £30-60,000 for two of the properties in the estate or the reduction in IHT resulting from the award to Mrs Adams;

(d) Before deduction of IHT;

(e) Other than personal chattels;

(f) Right to occupation ceases on remarriage, cohabitation or ceasing to reside in the property; no provision for sale and purchase of a substitute property;

(g) Benefits payable to her on H’s death;

(h) State pension plus H’s occupational pension benefits.

How and when should White apply?

From the requirement to carry out the section 3(2) exercise, it follows that White v White will apply to a surviving spouse’s 1975 Act claim if it would have applied in relation to the notional divorce; but the opinions of the House of Lords raise a number of questions as to the scope of the decision in matrimonial cases and, naturally, do not deal with its impact on 1975 Act claims. Among those questions are:

How are the relevant contributions to be assessed?
If the court finds the contributions unequal, should the division of assets reflect that finding?
Is there a workable distinction between using equality as a form of check and treating it as a starting-point or establishing a rebuttable presumption of equality?
Is the scope of the decision confined to ‘big money’ cases and, if so, how is a ‘big money’ case to be recognised as such?
Is there a danger of giving the s.3(2) exercise primacy among the matters to be taken into account?

Transfers, settlements and acquisition of property

General

The six types of order which the court can make are specified by s.2(1) of the Act, and s.2(4) gives the court wide powers to make consequential and supplemental

provisions for the purpose of giving effect to the order or securing that the order operates fairly between one beneficiary and another. As has been said, by far the

commonest type of order made in 1975 Act claims is a lump sum order. This is favoured partly because it enables the PRs to wind up the estate more rapidly and partly because it avoids the continuance of contact between parties who are personally hostile to each other.

The home

Sometimes in surviving spouse cases the question arises whether the matrimonial home should be transferred to the surviving spouse outright or settled on her for life. The Court of Appeal held in Re Krubert [1997] Ch 97 that an outright transfer should not be made, as the spouse had not shown a need for the property as a capital resource. The commonest award is a life interest, but in Adams v Lewis the widow was awarded the house outright as a capital resource, and in Rajabally [1987] 2 FLR CA, where it was the only asset of the estate, it was awarded to the widow absolutely subject to a legacy to a disabled adult child, which was to be raised by a charge on the house.

The same question arises in cases where the claimant is a dependant who has been living in the deceased’s house or is a cohabitant. An example is Harrington v Gill (1983) 4 FLR 265 where the applicant claimed as a dependant, the parties having cohabited for some six years immediately before the death of the deceased. He died intestate and his sister took the net estate of £67,000 on his intestacy. At first instance she was awarded £5,000 together with the income of £5,000 for life. She appealed on the ground that the order did not make sufficient provision for her accommodation and the Court of Appeal ordered that the house be settled on her for life.

Cash settlements

Orders for settlements of money may become more frequent because of the desire to make awards that will not adversely affect the claimant’s entitlement to means-tested benefits. Thus in Hanbury v Hanbury [1999] 2 FLR 255 the claimant was the deceased’s 45-year old daughter by his first marriage, who was being looked after by her mother but would eventually need institutional care. It was ordered that £39,000

be settled on her on discretionary trusts of which she should be the principal beneficiary, to cover the cost of her eventual placement in a residential home. This was a valid settlement within s.2(1)(d) and would not affect her entitlement to income support.

In Re Abram [1996] 2 FLR 379, a settlement was ordered in unusual circumstances; the applicant, who was the adult son of the deceased, had failed in business and entered into an IVA with his creditors. He was awarded half the estate for life, to be settled on protective trusts, remainder to pass in accordance with the trusts of the will.

Acquisition of other property

Under s.2(1)(e) the court may make an order for the acquisition, out of property comprised in the estate, of such property as may be so specified and for the transfer of such property to the applicant or for the settlement thereof for his benefit. This was done in Re Haig (1979) 129 NLJ 420 where the applicant had been living in the testator’s house and looked after him when he became ill. As she was on bad terms with the testator’s son, who lived nearby and who was the sole beneficiary, it was ordered that the house be sold and the proceeds of sale used to buy another property for her.

Variation of ante-or post-nuptial settlements

There is no reported case in which the power under s.2(1)(f) to vary such a settlement has been employed. In the unreported case of Dixit v Dixit⁴ the deceased had left two investment properties on trust for different members of the family. At first instance an order was made which purported to make the trusts of property A (as varied by the court) apply instead to property B, while property A would be held absolutely for the beneficiaries of the trust of property B. This created a CGT liability in respect of the disposal of property A. The Court of Appeal did not decide whether s.2(1)(f) could be used to effect this ‘switch’ of the trusts, because it held that the order could not stand in view of the fact that no consideration had been given to its CGT implications. u

Reference:

Compare s.1(2)(b) which applies to all other classes of applicant and defines reasonable financial provision as that which would be reasonable in all the circumstances for the applicant to receive for his or her maintenance
s.3(2)
Chancery Division, 22 January 2002.
Court of Appeal, 23rd June 1988

Sidney Ross is a barrister at 11 Stone Buildings. He can be contacted at Sidneyr@11stonebuildings.com.