The Inheritance Act: larger awards for surviving spouses?

Feature

posted 17 May 2001 in Volume 6 Issue 4

The Inheritance Act: larger awards for surviving spouses?

By Miranda Allardice

The recent House of Lords decision White v White [2000] 3 WLR 1571 which deals with ancillary relief claims, has repercussions for surviving spouses who make a claim pursuant to Section 1(1)(a) Inheritance (Provision for Family and Dependants) Act 1975 “the Act”.

Cross fertilization between life and death provision

The Law Commission Report No 61 reporting in 1974, recommended that a surviving spouse should be entitled to reasonable financial provision, defined as; “such financial provision as it would be reasonable in all the circumstances of the case for the husband or wife to receive, whether or not that provision is required for his or her maintenance”. The definition being designed to ensure that the surviving spouse received a “a just share” of the family assets. There was concern that the surviving spouse would otherwise be a poor relation to those who choose to terminate their marriage in life, and receive an award pursuant to the Matrimonial Causes Act 1973. The guidelines proposed under the Act were to enable the court to adopt an approach similar to that of divorce proceedings and to recognize that a surviving spouse is entitled to a share of the family assets by virtue of contributions to the welfare of the family.

Developments in the ancillary relief sphere

The Whites were a farming family, a emotional and business partnership was in place. The wife was no Marie Antionette playing at farming in the grounds of Versailles but a “hands on” farmer. The marriage lasted 30 years, and there were 3 adult children. Their total net assets were assessed at £4.6 million. At first instance the wife, who had £193,000 in her sole name was awarded a further lump sum of £800,000, on the basis of her reasonable requirements for housing and income. The Court of Appeal raised the award to £1.5 million or 2/5ths of the assets (after payment of significant costs). The House of Lords declined to interfere with the award but did give guidance as to the exercise of the board discretion conferred on the court by Section 25 Matrimonial Causes Act 1973. The first principle to emerge from Lord Nicholls’ judgment is as follows: “If in their different spheres, each contributed equally to the family, then in principle it matters not which of them earned the money and built up the assets. There should be no bias in favour of the money-earner and against the home-maker and the child-carer.” The second principle is that: “As a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so. The need to consider and articulate reasons for departing from equality would help the parties and the court to focus on the need to ensure the absence of discrimination.”

The effect of White in ancillary relief courts

The House of Lords expressly reject the practice (that had grown up in ancillary relief cases), where assets substantially exceeded needs of confining the wife’s claim to satisfaction of her reasonable needs. These were assessed with reference to her need for housing and the standard of living enjoyed by the parties during the currency of the marriage. The wife’s income needs were commonly capitalized using Duxbury calculations, which provide the lump sum required to draw down against and exhaust during the lifetime of the recipient. In the bigger money cases the House of Lords asked the question; “why should the surplus belong solely to the husband?”. The House of Lords found the method of assessment in the ancillary relief courts to be discriminatory against the wife.

The House of Lords did not articulate potentially valid reasons for departing from equality. Within the ancillary relief jurisdiction those potential reasons are therefore being argued out, and there is some resultant uncertainty. The immediate impact has been to increase the level of awards for wives in cases where assets exceed needs. In Dharamshi v Dharamshi 2001 1 FLR 736, the Court of Appeal concluded that under the old approach it would have awarded the wife only 19% of the assets (if a Capital Gains Tax Scheme worked) but applying White awarded her 35% of the assets. While this is not the full 50% it does represent a substantial uplift, from the previous level of award.

The effect upon Inheritance Act claims

It can be argued that the Act itself should have prevented the Inheritance Act court perpetrating the heresy that reasonable needs were a ceiling for provision. The Act expressly spells out that the award should not be limited to the maintenance requirements of the surviving spouse. The Act imports straight from the matrimonial legislation consideration of the spouse’s non- financial contribution Section 3(2)(b)

“the contribution made by the applicant to the welfare of the family of the deceased, including any contribution made by looking after the home or caring for the family”. In addition the Inheritance Act court is enjoined 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 divorce”

It is important to note that these statutory considerations are only part of the whole picture created by Section 3. The Court of Appeal in the case of Re Krubert (decd) [1997] Ch 97 made it clear that the above fiction of divorce and the presumed entitlement from ancillary relief proceeds are not to be treated as the pre-eminent considerations. The orthodox approach is to be found in the case of Re Besterman (decd) [1984] Ch 458 Oliver LJ held:

“In an application under [the Inheritance (Provision for family and Dependants) Act 1975, however the figure resulting from the s25] (of the Matrimonial Causes Act 1973) is merely one of the factors to which the court is to “have regard” and the overriding consideration is what is reasonable” in all the circumstances. It is however, obviously a very important consideration and one which the stature goes out of its way to bring to the court’s attention”.

Awards at different ends of the wealth spectrum

The debate continues as to whether White is applicable across the board from the small asset cases to the multimillionaire couple. In the sphere of the Inheritance Act where there is a small estate, one must guard against the literal application of a 50% formula with reference to ancillary relief proceedings. The Court of Appeal addressed that issue in Re Krubert. Nouse LJ appreciated that in the case of small estate this may place an artificially low ceiling on the claim, as of in ancillary relief proceedings two people will need to be provided for, and under the Inheritance Act there is only the survivor for whom reasonable financial provision must be made.

The leading case in respect of a surviving spouse against a large estate remains that of Re Besterman. Would the result for Mrs Besterman be different post White?. This was an 18 year marriage by a couple in their then middle years. The deceased husband had been a wealthy man, the estate was valued at £1.5million, including his valuable collection of 18^th century literature. The residuary beneficiaries were charities to whom the deceased owed no obligation. The widow received an award of £378,000, or approximately 25% of the estate. In arriving at that figure the Court did adopt as a useful cross-check only, guidance from Wachtel v Wachtel [1973] Fam 72, endorsing the practice of 33% of the family assets passing to a wife on divorce, together with periodical payments of the same fraction. Post White Mrs Besterman would have been likely to secure a larger award approaching the 50%. The charities might have argued that much of the deceased’s wealth was built up pre-marriage, and that this amounted to a cogent reason for endorsement of an award of slightly less than 50% to the widow.

Lord Nicholls recognized the organic and flexible nature of the board discretionary power given by Parliament some 30 years ago, allowing the courts to respond to social developments and concepts of fairness.

There is evidence in a recent post White High Court Inheritance Act case (not yet reported), that the two principles of non-discrimination and equality will be embraced by the Inheritance Act cases applying White. Where is a large estate, the position of the widow is likely to be enhanced by reference to the post White approach in the divorce courts.

Type of Provision

There are two principles that the court seeks to reconcile in an Inheritance Act claim, they are the principle of freedom of testamentary disposition, and that certain family relationships give rise to a moral obligation for support. These two competing claims are sometimes reconciled by the award of a life interest in the estate, so that the freedom of testamentary disposition is only fettered and not wholly overridden. A clear example of this compromise is to be found in the case of Davis v Davis [1993] 1 FLR 54. There the widow had been left a life interest in the whole estate, but no provision for any capital. Her claim for ownership of the property in which she resided was rejected. The Court of Appeal declined to interfere with the judge at first instance who held that; “in terms of his surviving widow he could not have done more”. The case of Re Krubert is a further example of the court endorsing the life interest route there after a 40 year marriage where the widow had purchased the plot upon which the matrimonial home had been built. The widow as 89 and could demonstrate no need for actual ownership. Post White there is a cogent argument that the Mrs Krubert should have received at least a half share in the former matrimonial home outright, and a life interest in the remainder.

Freedom of testamentary disposition for surviving spouses

In Re Besterman the argument was put forward that the widow should receive a fund with which she could buy an annuity, with which to provide for her maintenance. By definition the annuity would die with her and she would have no funds to leave to her chosen beneficiaries. The express provisions of Section 1(2) make it plain that the surviving spouse is entitled to more than a maintenance fund. The original stated aim of the Law Commission was to award the widow her a just share of the family assets, such an award leaves the widow free to make such provision for the next generation as she sees fit. Similar financial freedom was sought by Mrs White in her ancillary relief proceedings. Lord Nicholls held that where resources exceed need, a wife’s desire to have funds to pass to the next generation was at least as valid as her husbands. There should be no discrimination between the sexes. Post White the widow may secure greater financial freedom, with her “just share” of the family assets being awarded to her outright.

Miranda Allardice 3 Pump Court,

Temple,

London, EC4Y 7AJ