Unforeseen Consequences: A Modern Family Case Study on Estate Planning and Divorce Settlements
Unforeseen Consequences: A Modern Family Case Study on Estate Planning and Divorce Settlements
Thomas Sismey v Marissa Salandron – a case highlighting a number of easy ways in which decisions taken in a more modern family situation can lead to unforeseen consequences, both during the parties’ lifetimes but also after death, even to the extent of undoing provision made for a particular individual.
In this 2021 reported case, the deceased married his first wife, Sheila in 1984. He subsequently purchased a property in his sole name in 1986 and he and Sheila moved in. By 1993, their son, Thomas was born. The property in question therefore became the family home. Sometime later by 2000, the deceased was working overseas and during that period developed a relationship with a lady later to become his second wife, Marissa.
On learning of the deceased’s affair with Marissa, in 2005 Sheila and Thomas moved out of the property. It seems that Sheila and the deceased did not sort out their financial affairs and the property remained in the deceased’s sole name.
In October 2008, the deceased and Marissa had a child, John, and as a family, the deceased, Marissa and John returned to live in the UK in 2012. They moved into the property which by then was, of course, vacant. Still there had been no settlement between the deceased and Sheila following on from their separation.
On 5th December 2013, a decree nisi was issued in the divorce proceedings between the deceased and Sheila and they subsequently after some discussion between themselves reached an agreement, which was documented in a financial consent order which was subsequently approved by a District Judge in the Nottingham County Court.
Within the recitals, the consent order provided an undertaking that the deceased would irrevocably execute forthwith a deed in the form annexed hereto covenanting with Sheila to leave the property by Will to Thomas. The promise was stated to be binding upon his heirs.
On 12th March 2017, the deceased signed a Will part of which provided that there was a bequest of the property to Thomas in accordance with his earlier given undertaking.
In July 2019 some two years later, the deceased was diagnosed with a terminal illness and as a direct result of that and with the intention of ensuring that Marissa received benefit under his pension, the deceased and Marissa married on 9th October 2019. The effect of that marriage was to revoke the Will of 12th March 2017 meaning that by 28th January 2020, the date on which the deceased died, he died with no valid Will and his estate fell to be distributed in accordance with the rules of intestacy. One has to assume here that he had thought only of the fact that he wanted Marissa to have the benefit of his death in service provisions but had not appreciated that his marriage would revoke his earlier will which had reinforced the provision for Thomas as made within the divorce settlement.
On 13th May 2020, Marissa as the surviving spouse took out a grant of letters of administration and transferred the property to her sole name quite rightly assuming that in light of the fact the earlier will had been revoked she was entitled to the estate.
The estate was modest, £203,000 in total, but the property amounted to some £190,000 of that full amount. As such Marissa was set to inherit the entire estate including the house previously intended to pass to Thomas.
The claims which the Judge needed to decide in this matter were:
- Thomas sought specific performance of the agreement in the deed of covenant or in the alternative that there was effectively a declaration by which the property was held in trust for him. This was really seeking clarification as to whether the covenant could be enforced.
- Marissa opposed that on the basis that the document failed to comply with Section 2(1) of the Law of Property (Miscellaneous Provisions) Act which requires any transfer of land to be in writing. She also denied the existence of a constructive trust.
- Marissa also brought a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (“The IHA”) so that in the event the court allowed Thomas’s claim, she could seek to recover sufficient from the estate to meet her needs. If Thomas’ claim were successful, she would inherit very little and as surviving spouse she clearly had the right to bring a claim under this jurisdiction.
By bringing a claim under the IHA Marissa was able to invoke Section 11 of that Act – a not commonly used section. In the event if the court found that all of the factors below were met then they had the ability to claw back any property subject to the covenant. Those questions asked by the court were:
- Did the decreased make a contract agreeing to leave the property by Will?
- Did he make a contract with the intention to defeat any potential claims under the Inheritance Act?
- Was full consideration provided?
- Would making an order facilitate the making of financial provision under the Inheritance Act?
If met, those conditions would allow the court to use the property to make reasonable financial provision for the surviving spouse notwithstanding the financial order made within the divorce proceedings.
The case was unusual for a number of reasons. By the time the consent order was negotiated the deceased was living with his then girlfriend and she was aware of its contents, and indeed she had signed the consent order. There were a number of emails passing between the deceased and his first wife, Sheila. Those emails allowed the court to find that the divorce settlement was “collusive” and had indeed been made with the intention of defeating a potential Inheritance Act claim. This allowed the judge to determine that she was entitled to go behind the divorce order and decide whether it had been fair. She then considered whether there had been full consideration given for the divorce settlement and established that there had, on the basis that settling the property on Thomas bought off any risk of a pension sharing order, the deceased’s pension being of significant size.
In this particular case, it was eventually decided in favour of Thomas, the court holding that the covenant did in fact comply with S2 of the Law of Property (Miscellaneous Provisions) Act and was enforceable. Furthermore, when read together with the consent order, valuable consideration had been given in that the first Wife had forgone a share in the pension. In short Marissa was unable to show that Sheila had not given full valuable consideration for the deed of covenant and the Section 11 claim must therefore fail. However, for matrimonial practitioners, although the initial divorce settlement was upheld in this particular instance there are clearly significant risks if the decision had been different.
It seems that this case could add a layer of uncertainty on the value of reaching a settlement within divorce proceedings where a property is covenanted to be left by Will.
The key here is that the court felt able to go behind the financial consent order. Had Marissa been able to convince the court that there had not been valuable consideration, the decision might have gone the other way. This would have left the first wife and Thomas without what was essentially the main benefit of the financial consent order. Further, there would have been no ability to renegotiate because of course by then the husband had passed away. Similarly, there must be the possibility that insolvency practitioners have a better chance of setting aside a court approved divorce settlement on the basis that the transaction is one at an undervalue.
Family practitioners often forget about Section 11 of the 1975 Act and indeed this case was the first reported case where Section 11 had been argued. In cases where the Section 11 criteria are met, any contract within a consent order may be at risk particularly where there is a strong application for reasonable financial provision by a claimant under the 1975 Act.
How to avoid the risks outlined above:
- Ideally Sheila would have secured her position in relation to the house on marriage.
- She should certainly have considered her position on separation and tried to resolve financial matters then rather than delaying.
- The deceased should perhaps have put his affairs in order and sorted this out when he had his second child John.
- Clearly, he should have sorted things out when he re-married and was diagnosed with his terminal illness assuming of course he knew that the will he had previously made was going to be invalidated by his remarriage.
For matrimonial practitioners it is never the best option to include a covenant to leave by will within a financial consent order and most of us actually wonder whether it is ever going to hold up – there are a number of reasons why we shy away from such a provision, but this case adds another reason to avoid these clauses wherever possible or at the very least ensure that every other option has been considered.
For individuals with second families the advice must be to be seek advice at every stage in your life when there is a change. Advice at the relevant time can often ensure that problems later on can be avoided. Changes in circumstances whatever they might be require thorough consideration being given to your personal affairs both during your lifetime but also after death.
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