Seminar Notes 13.06.07 Francis Collaço Moraes

2 Gray's Inn Square Chambers

Seminar Notes 13.06.07 - Francis Collaço Moraes

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Seminar Notes

These notes were prepared by Francis Collaço Moraes and form part of the seminar Inheritance Act Claims - What you need to know in 2007 given on 13th June 2007 by members of the 2 Gray's Inn Square Chambers Property & Commercial Group.

Francis Collaço Moraes

Index

Special cases: Spouses and Civil Partners, Cohabitants and Adult Children

Reasonable financial provision

The standard in the majority of claims

There are two standards by which reasonable financial provision is measured:

The standard which applies to applications by spouses and civil partners*

*Section 1(2)(a) and those to whom s14 applies. The same standard can be applied to cases to which s14A applies.

In these applications reasonable financial provision is “such financial provision as it would be reasonable for the spouse or civil partner to receive whether or not that provision is required for his or her maintenance**

**See s 1(2)(b)

The standard which applies to all applicants, save spouses and civil partners

This is the maintenance standard. For applicants to whom the maintenance standard applies, the IPFDA defines reasonable financial provision by reference to “such financial provision as it would be reasonable in all the circumstances of the case for the applicant to receive for his maintenance”.

Index

The standard in certain special cases

In addition, there are two special classes of applicant who are not subject to the maintenance standard. In these cases, the more generous standard will apply. These are:

Those spouses and civil partners who were judicially separated, but where at the date of death the separation was not continuing. (Proviso to s 1(2)(a)).

The position of civil partners who are subject to a separation order and remain separated at the date of death is that the terms of s 1(2)(aa) apply so as to define the standard of provision as the maintenance standard.

Those spouses and former spouses who fall within s 14 of the IPFDA.

This section applies where the other party to the former marriage dies within a year of the decree absolute of divorce, or nullity, or decree of judicial separation, but where no application for ancillary relief was made, or determined at the time of the death of the deceased. In these cases, the court has power, if it thinks just to do so, to treat the application as if the decree of divorce or nullity had not been made absolute, or as if the decree of judicial separation had not been granted.

In cases of judicial separation by order of the court, s 14 only applies where, at the date of death the order was in force and the separation was continuing.1 If the separation was not continuing (i.e. the parties were living together) the applicant is entitled to the more generous standard as he will be outside the exception to s 1(2)(a) and therefore within the “surviving spouse” standard) – see above.

As to former civil partners, the position is the same as that for former spouses and under s14A of the IPFDA the court may apply the more generous standard as if the civil partnership had not been terminated by any of the orders referred to in s 14A(1). Note that one of those orders may be a “presumption of death” order (made under s 55 of the Civil Partnership Act 2004) and that is a feature not present in s 14 of the IPFDA, for there for there appears no statutory equivalent in the case of spouses.

Index

Spouses

Preliminary Matters

Spouses - The three categories

Marriage

Void marriage – s 25(4)* – ‘wife includes an individual who enters into a void marriage with the deceased’ - a ceremony must at least purport to be a marriage contemplated by the Marriages Acts o No marriage – no entitlement as spouse under IPFDA

*Same definition as that contained in the Matrimonial Causes Act 1973

No marriage – no entitlement as spouse under IPFDA

Gandhi v Patel (2002) 1 FLR 603**

**Hindu ceremony, but no attempt made to comply with the requirements for marriage in England and Wales

Domicile/Residence – unlawful presence in England no bar to claim as domicile/residence is a matter of fact not entitlement for the purposes of IPFDA

Witkowska v Kaminski [2006] EWHC 1940 (Ch)

The standard

A spouse pursuant to s1 will be entitled to reasonable financial provision as would be reasonable in all the circumstances for a spouse to receive, irrespective of the need for maintenance.

Index

Specific considerations

The court will have specific regard to:-

the age of spouse and the duration of her marriage

the contribution spouse has made to the welfare of the family including looking after and caring for the family

the provision, which a spouse 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.

(s 3(2) of IPFDA).

What is the starting point - Death v Divorce

The courts’ approach to ancillary relief cannot be transposed directly to IPFDA claims.

In IPFDA claims, the court is not necessarily concerned to achieve an “equitable” or “fair” result where there are, for example, competing interests of beneficiaries, not so much by the “needs” of the parties, but whether the standard of provision is reasonable.

However, as in an IPFDA claim brought by a spouse, the court must have regard to what the spouse would have received if, at the date of death, the marriage had been terminated by divorce, the courts will necessarily have some regard to the recent ancillary relief cases.

What do the recent ancillary relief claims tell us?

Recent case-law, in particular Miller v Miller McFarlane v McFarlane Charman v Charman demonstrates that the courts in ancillary relief proceedings have moved away from considering what parties have each contributed to a marriage and what their reasonable requirements might be to an approach based upon the premise that “each party to a marriage is entitled to a fair share of the available property”.

The available property includes the property brought by each party to a marriage, including inherited wealth.

10.

Where assets exceed needs an award must be measured against the yardstick of equality or cross-check – the ‘principle of sharing’ - which can be derogated from (but rarely) where

there is non-matrimonial property (business of one spouse which is kept separate)

there is a special contribution which it would be inequitable to disregard e.g. the manner of the accrual of wealth.

Index

The Approach of the Court – IPFDA claim

11.

Notional entitlement on divorce

While the courts have stated that the exercise is not one of attempting to put the spouse into the position she would have been but for the marriage, that is the logical effect of the approach that has been adopted - i.e. an appraisal of the applicant's notional entitlement on divorce; see: S v S [1977] Fam 127 134C-G per Ormrod LJ and Hedges v Hedges [1991] 1 FLR 196

12.

Take into account that there is no surviving spouse

The courts have recognised that "the divorce entitlement" is only a starting point, for on death there is no need to provide for the husband; see: In re Bunning, deceased [1984] Ch 480 at 498F-499B, and Moody v Stevenson [1992] Ch 486 at 498D-499E. In McNulty v McNulty [2002] WTLR 737, Launcelot Henderson QC, (then sitting as a Deputy High Court Judge), observed that it would often be appropriate to award a higher sum to the surviving spouse than they would have received on a notional divorce, the reason being that the position after the divorce was that both parties had to be provided for whereas on death there is only one surviving spouse.

13.

Take into account claims of other beneficiaries

These claims are not present on divorce.

14.

This approach was adopted in Fielden and Graham v Cuncliffe [2005] EWCA Civ 1508 [2006] Ch 361

6 months as housekeeper followed by 12 months as wife

Net estate £1.4 million. Residuary estate left on discretionary trust which included wife as a beneficiary

Wife had no independent income, but had received £150,000 by survivorship

Court of Appeal held

There is a clear difference between long marriage where there had been an equal contribution to family and this case

On divorce, the wife would have notionally received a lump sum allocated for her housing. An equal spilt was clearly wrong.

While the wife had a reasonable expectation that on marrying her life as a single woman need not revert to her life prior to marriage, ‘reasonable financial provision’ would not enable her to live in the former matrimonial home or at the standard of living she enjoyed when her husband was alive.

Award £600,000* (reversing 1st instance award of £800,000)

*£200,000 for housing and balance to give her an income of £30,000 pa taking into account her capital of £150,000 and the Duxbury calculations.

The Besterman cushion is no longer considered an appropriate approach in financial proceedings following divorce, but is authority for the proposition that a blameless widow of a wealthy husband is entitled to look forward to financial security for the remainder of her life.

Additional matters

15.

In addition the court will consider the other factors set out in s 3(1) of IPFDA.

the financial resources and financial needs of spouse now and in the foreseeable future.

the financial resources and needs of any other applicant under IPFDA.

the financial resources and needs of any beneficiary under the estate

any obligations and responsibilities which the deceased had to any applicant under IPFDA or beneficiary of the estate

the size and nature of the estate

any disability of spouse or any applicant under IPFDA or beneficiary of the estate

any other matter including the conduct of spouse or any other person, which in the circumstances of the case the court may consider relevant (e.g. the pre-nuptial agreement).

Pre-nuptial agreement

16.

A pre-nuptial agreement is not enforceable in the English courts (If it is subject to another jurisdiction, the rules of that jurisdiction should be taken into account). However, where the parties have received independent advice, the court have been know to have regard to such documents.*

*See: K v K [2003] 1 FLR 120

Index

Unmarried Former Spouses

How to avoid claims

17.

“After 12th October 1984, any practitioner or judge of any experience in the field of ancillary relief understood that the inclusion of an Inheritance Act bar was an essential part of any clean break settlement or order …” Thorpe LJ in Cameron v Treasury Solicitor [1996] 2 FLR 716 at 723

18.

Section 15 and 15ZA of IPFDA, provide for the barring of claims under IPFDA on termination of marriage or civil partnership.

19.

A claim can only be excluded by an order under those sections. Absent, such an order the estate leaves itself open to such claims. See for example the ineffective separation agreement in Parnall v Hurst and Martin HHJ Langan QC 4 April 2003*

*Separation 1987. 23 September 1987, magistrates order for maintenance. 2 July 1990 decree absolute. Remarried 2001. Death 19 September 2001. Held that former spouse entitled to make claim

20.

Declaration by the deceased are not going to suffice as the court is concerned with the ‘objective’ provision of reasonable provision

Claims

The standard

21.

Unless s14 applies, only entitled to ‘maintenance’ standard.

22.

Circumstances where award may be made

Where there is a long standing periodical payments order and there is reasonable amount of capital in the estate

Where death unlocked substantial capital of which the deceased should have been aware.

Arguably, when there are no competing interests and where there is a need (not following Cameron v Treasury Solicitor [1996] 2 FLR 716 CA)

23.

Circumstances where it is unlikely there will be an award

Where there was a ‘clean break’ settlement

Where an agreement has been reached between former spouses

Where there is insufficient to provide for the former and the surviving spouse

Where the former spouse has not been dependent on the deceased

Index

Civil Partnerships

General

24.

Civil partners are largely treated identically to spouses

under s 3(2) the Court, when considering applications by registered surviving civil partners, will have regard to the provision which the applicant might reasonably have expected to receive if on the day on which the deceased had died, the civil partnership instead of being terminated by death, had been terminated by a dissolution order

Sch 5 of the Civil Partnership Act 2004, sets out the powers of the Court on dissolution of a registered civil partnership

In particular, the Court must have regard under Sch 5 paragraph 21, to the matters set out there (mirroring to a very large extent those currently set out in the Matrimonial Causes Act) and under paragraph 23 the principle of the “clean break” is embodied as much as it is in the Matrimonial Causes Act 1973.*

Applications by former civil partners who have not formed a new civil partnership will be treated in the same manner as applications by former unmarried spouses

Specific issue

25.

As registered civil partnerships will by necessity be short lived – it follows that it will be difficult to resist taking prior unregistered cohabitation into account. In the context of marriage there is an increasing trend, which recognises pre-marital cohabitation when considering financial provision (see M v M [2004] EWHC 688, Miller v Miller; McFarlane v McFarlane [2006] UKHL 24).

Index

Cohabitants

General

26.

There is no concept of entitlement to ‘family assets’ – Law Commission is reporting on this issue

Eligibility - different sex

27.

if the deceased died on or after 1 January 1996 and, during the whole of the period of two years ending immediately before the date when the deceased died, the person was living –

in the same household as the deceased, and

as the husband or wife of the deceased

Eligibility - same sex

28.

if for the whole of the period of two years ending immediately before the date when the deceased died the person was living –

in the same household as the deceased, and

as the civil partner of the deceased.

The standard

29.

‘maintenance’ standard applies

28.

But in addition to the s 3(1) factors, s3(2A) allows the court to consider:-

the age of the applicant,

the length of the duration of the sharing of a household, and

the contributions of the applicant made by caring after the home or caring for the family.

What constitutes ‘living in the same household’

29.

‘household’ is not a ‘house’

30.

parties will be in the same household if they are tied by their relationship

not simply under the same roof

the public and private acknowledgment of their mutual society

the mutual protection and support that binds them together

one or two ‘domestic economies’

Kotke v Saffarini [2005] EWCA 221, [2005] 2 FLR 517

Fatal Accident Act 1976 claim. Each had a separate house. Stayed together at w/e. Did not have substantial possessions at the other’s house.

Churchill v Roach [2003] WTLR 779 HHJ Norris

Each had a separate house. Lived together at w/e. Did not have substantial possessions at the other’s house. Took holidays together. Deceased bought neighbouring property, which were joined.

31.

Living together as husband and wife/civil partners

Elements of permanence

Nutting v Southern Housing Group Limited [2004] EWHC 2982 (Ch) – The abusive relationship lacked a sufficient commitment to permanence, to meet the test; “absence of a cynical disregard for the emotional and financial well being of the chosen partner.”

The frequency and intimacy of contact

An element of mutual support

Consideration of the degree of voluntary restraint upon personal freedom

An element of community of resources

Re Watson (deceased) [1999] 1 FLR 918

Baroness Hale when considering the issue of whether a couple were “living together as husband and wife” stated; “what matters most is the essential quality of the relationship, its marriage-like intimacy, stability, and social and financial inter-dependence.” Ghaidan v Godin-Mendoza [2004] UKHL 30

Immediately before the date when the deceased died

32.

Look at the settled basis of the relationship not physical separation

Neuberger J in Re Watson (deceased) [1999] 1 FLR 878 supported a ‘wide’ interpretation for the provision; holding that where someone was forced to go to hospital for a long period where he died, such person did not cease to be part of the same household.

Caters for a volatile relationship

Ward LJ “so the steadfastness of a commitment to live together may wax and wane, but so long as it is not extinguished it survives.” Gully v Dix [2004] EWCA Civ 139 [2004] 1 FLR 918

Index

Adult Children

33.

Eligibility

"(c)

a child of the deceased;"

"(d)

any person (not being a child of the deceased) who, in the case of any marriage or civil partnership to which the deceased was at any time a party, was treated by the deceased as a child of the family in relation to that marriage or civil partnership;”

The Standard

34.

‘Maintenance’ standard

General

35.

The relationship in itself does not give rise to entitlement

Special factors

36.

In addition to the s3(1) factors the court will have regard

to the manner in which the applicant was being, or in which he might expect to be, educated or trained

both minor and adult children are within the scope of the special factors in s 3(3); Re Callaghan [1985] FLR 116 at 120F–G per Booth J and see also Re Leach [1986] Ch 226. For those embarking on further full-time education, the availability of student grants, “soft loans” from banks and scholarships for vocational courses, as well as “sponsored” places, must be brought into account.

37.

where applicant treated ‘as a child’

whether the deceased had assumed any responsibility for the applicant’s maintenance and, if so, the extent to which and the basis upon which the deceased assumed that responsibility and to the length of time for which the deceased discharged that responsibility

whether in assuming and discharging that responsibility the deceased did so knowing that the applicant was not his own child;

the liability of any other person to maintain the child

Moral Obligation

38.

Not a necessary pre-condition Espinosa v Bourke [1999] 1 FLR 747

39.

But if established will go to the issue of whether there has been reasonable provision

Myres v Myres [2004] EWHC 1944 (Fam)

Adult daughter living in straightened circumstances – result of awkward personality and mental fragility rather than indolence. She had not behaved badly to deceased (and he had believed). Estate was substantial.

Garland v Morris [2007] EWHC 2 (Ch)

2 daughters – one estranged – no award as she “no longer had any reasonable claim on his bounty”

The real issue is:-

40.

Can the adult child maintain him/herself

Usually cannot maintain because of a disability

Hanbury v Hanbury [1999] 2 FLR 255 (45 year old daughter of 1st marriage who was mentally and physically disabled, received an award of £39,000. She had a life expectancy of about 40 years. The deceased had little to do with her from when she was 4 years old.)

Stephanides v Cohen LTL 22/5/2002 (On a widow's application for reasonable financial provision under the Inheritance (Provision for Family and Dependants) Act 1975 the court was satisfied that the deceased's legal obligation to provide for his widow was more compelling than his moral obligation to provide for his adult son, who was a confirmed drug addict.)

41.

If the adult child can maintain him/herself why should provision be made. Factors that would give a favourable answer:

The deceased told someone other than the adult child that he/she would benefit on his death

The adult child has acted to his/her detriment on the encouragement of the deceased that he/she would benefit from the estate.

There was some other moral obligation on the deceased e.g. the adult child was the carer.

Index

Remedies: What your client will end up with

Net estate – the Pie

42.

The relevant date is the date of the hearing s3(5)

43.

‘Property’ includes

Any sum of money or other property (less IHT) which any person has nominated to receive and (1) the nomination is in force at death and (2) the nomination is in accordance with statute

Occupational pension schemes if there is power to nominate by the employee under statute. Private sector occupational pension schemes are excluded

Life insurance policies if not held on trust. Policies held under a trust do not form part of the net estate.

Donationes mortis causa

Severance

44.

Section 9 of IPFDA

Permits severance of joint tenancy within six months of grant

Take proportion of share of property and treat it as part of the net estate (note this is not a literal reading of the section but a purposive one)

Dingmar v Dingmar [206] EWCA Civ 942

Nature of estate

45.

While the IPFDA does not contain an express prohibition against a realisation that would be improvident, the courts will strive to retain the maximum value of the estate. For example ordering a lump sum to be paid rather than dividing a working business; see: Rowlands v Rowlands [1984] FLR 813.

Urgent need

46.

Interim Orders

The power to preserve property during litigation - CPR, r 25.1(1)(c)

Interim orders limited to payments (single or at intervals)

Need of applicant

Need of estate (urgent need to sell property)

The powers of the court: general

47.

Lump sum – s2(1) (b)

Periodical payments – s 2(1)(a)

Transfers – s 2(1)(c)

Settlements – s 2(1)(d)

Acquisition of property – s 2(1)(e)

Lump sum

48.

“an order for the payment to the applicant out of that estate of a lump sum of such amount as may be so specified;”

This is the order made in the vast majority of claims. It has the attraction of finality.

49.

Issues:

One lump sum, or payment in instalments

Should the lump sum bear interest and if so from what date

Is any specific direction regarding the incidence of the lump sum required

If there is foreign property, can the order contemplated be effective against such property

No power to vary (unless lump sum payable in instalments and then only as to timing and amount of instalment) – so consider contingencies and inflation

Capitalising income needs

Multiplier-multiplicand – crude approach to accelerated income

Duxbury and Ogden Tables

Index

Periodical payments

50.

s 2(1)(a): “an order for the making to the applicant out of the net estate of the deceased of such periodical payments and for such term as may be specified in the order;”

51.

Types of Order

payments of such amount as may be specified in the order

payments equal to the whole of the income of the net estate or of such portion thereof as may be so specified

payments equal to the whole of the income of such part of the net estate as the court may direct to be set aside or appropriated for the making out of the income thereof of payments under this section

may provide for the amount of the payments or any of them to be determined in any other way the court thinks fit.

52.

Issues

from what date should the payments start

the date of death

the date when the claim was made

the date of the order

at what rate should the payments be made and when should they be paid

should the payments be reviewed at a given interval

should the payments be index-linked by reference to a defined index, and if so to what index

The power at the end of s 2(2) for the court to determine the amount of the payments in “any other way [it] thinks fit” seems to give the court authority to index link payments, if not the general power under s 2(4).

should the payments be suspended for any period

for what period should the payments run

should the payments be discontinued at any time, eg: remarriage of a spouse applicant; at the age of 18 or 21 by an infant applicant, or on cessation of full-time education, if later

53.

Note: the restriction imposed by s 19(2) where periodical payments cease on the remarriage of former spouses, or judicially separated spouses. The same restriction will apply to former civil partners, or those separated under Sch 2 to the Civil Partnership Act with effect from 5 December 2004; see s 19(2) of the IPFDA, as amended with effect from that date.

Index

Transfers of Property

54.

Real property or assets

55.

Transfer subject to a payment to the estate; see: Churchill v Roach [2003] WTLR 779 HHJ Norris

Settlements

56.

Give life interest

Acquisition of property

57.

For example buying a house using estate funds and that of the applicant