Spousal claims under the Inheritance (Provision for Family and Dependants) Act 1975
It is often said that a spouse is a favoured applicant under the Act because:
- the level of provision is such financial provision as it would be reasonable in all the circumstances for a spouse to receive, whether that provision is required for their maintenance; and
- the divorce fiction by virtue of which the court is to have regard to the level of provision that the spouse would have been expected to receive if the marriage had ended in divorce rather than death.
The jurisprudence in respect of spousal claims is influenced heavily by the decisions of the family courts. Marriage is now regarded by the courts as an equal partnership and therefore the division on breakdown must be conduct based on fairness and non-discrimination. Three principles have developed that are relevant to the court’s determination:
- Financial needs – this is the first call upon the available property and often exhausts it with no surplus available about which an argument can ensue.
- Compensation – this is aimed at redressing any economic disparity between the parties arising from the way they have conducted their marriage.
- Sharing – the fruits of the marriage. This is only applied if there is still property available after the first two have been satisfied.
The above is too often misunderstood as likely to result in an equal division of the deceased’s assets in respect of any spousal claim brought under the Act. The true approach is far more nuanced and fact-sensitive because:
- Financial needs mean reasonable requirements, and in assessing this factor the court may consider the standard of living enjoyed by the applicant during the lifetime of the deceased, and the extent to which the deceased contributed to that standard. The lifestyle enjoyed by the applicant with the deceased and the extent to which the deceased contributed is highly relevant.
- Whether those needs can be met will depend upon the size of the estate and the competing claims of other applicants and beneficiaries. The financial position of the beneficiaries might not be capable of being ignored.
- The deemed divorce test is but one of the factors that the court must consider under the Act. The court must only have regard to, and it does not take precedence over the other factors. There is nothing in the Act or the case law to suggest that it has magnetic importance.
- The test is a yardstick and does not set a minimum or a maximum when deciding what level of provision the applicant should receive.
- There are material differences between cases concerned with making financial provision following divorce and those under the Act:
- In claims under the Act whilst the court need only be concerned with making provision for one spouse and not two as in a divorce case, it must still balance the needs of the applicant against the needs of any beneficiary, not simply those of the other party to the marriage.
- Death may significantly alter the balance of available resources. Death will often destroy an income stream which would be a key consideration in the context of financial proceedings following a divorce or may have created value in the form of a life insurance policy, death in service benefit or guaranteed sum paid from a personal pension.
The jurisprudence above that has developed from decisions of the family courts can only a starting point when dealing with cases under the Act.
- The sharing principle applies to all matrimonial assets including those of the applicant and not just those of the deceased.
- Good reasons may exist to depart from the principle of equality of division including
- The court will take account of the effect of dividing up an asset and will be willing to depart from equality of division if an asset cannot be easily divided, or if it would cause a loss of value to do so.
- Special contribution by the deceased but only in the most exceptional cases.
- Not all property is treated in the same way. The sharing principle does not apply to all assets. Some assets are considered as matrimonial property which can be utilised to make provision for the applicant and others as non-matrimonial property. Non-matrimonial property will only be re-distributed by the court because of the application of the principles of need or compensation.
- Assets regarded as matrimonial property are generally those which have been acquired during the marriage (except for those that were acquired by inheritance or gift).
- Non-matrimonial property are generally assets that were acquired by the deceased before the marriage, but how such assets are regarded very much turns on
- the length of the marriage; and
- the degree to which the assets have been integrated.
A short marriage will not materially affect the outcome where the parties have built up assets from scratch during the currency of the marriage.
Equally, the relevance of the origin of assets will decrease over time. The longer the duration of a marriage, so the non-financial contribution of the poorer spouse will have increased, so that the scales of contribution will be better balanced.
Forbes recently dealt with a spousal claim where many of the factors above were live. We acted for the 66-year-old second wife of the deceased. The Will created a discretionary trust of the residuary estate where the bulk of the value of the estate was held. Our client was one of the objects of the trust along with the children of he deceased and his stepchildren.
The net value of the estate was the subject of expert opinion evidence and thought to be between £9 million and £12 million. The estate was illiquid, and the assets of the estate were employed for the purposes of a successful family business which raised difficult issues about how to extract value from the estate whilst avoiding potentially negative tax consequences.
Our client was able to achieve a positive outcome at mediation whereby she is to receive a lump sum within two years generated from the profits of the ongoing family business which will continue to employ the assets of the estate which do not now need to be broken up and sold. The factors that drove a settlement were:
- The parties had enjoyed a long relationship of some 30 years including a period of cohabitation prior to being married. The origins of assets were therefore far less relevant insofar as it could be said that assets had been acquired prior to the marriage and/or not integrated (which was disputed). The sharing principle therefore applied to any matrimonial property surplus after financial needs and compensation had been addressed.
- Even though our client had significant assets, her position still fell short of the former matrimonial assets. Given this was a long marriage the yardstick of equality of division was a strong factor.
- As the surviving spouse her claim was not limited to such reasonable financial provision as might be necessary for her maintenance. She had enjoyed a high standard of living with the deceased.
- Our client had financial needs because whilst she owned significant assets, she was cash poor. During the marriage most of the couple’s living costs were met by the deceased.
- The value of the estate was best realised by keeping the family business operating and not by breaking up the assets of the estate.
- The other beneficiaries under the Will and the other objects of the trust had financial needs that could not be ignored.