Marilyn Stowe Blog

Death and divorce – where does the money go?

Every so often, something dreadfully unexpected happens in a divorce case: one of the parties dies. The chances of this are slim but when it happens, everything is thrown into turmoil. What happens to the couple’s assets?

Regardless of any will that has – or hasn’t – been made, the court has power under Section 2 of the Inheritance (Provision for Family and Dependants) Act 1975 to adjust the estate of the deceased between claimants. Such a claim is subject to time limitation and must be made promptly.

An article by barrister Sidney Ross of 11 Stone Buildings in this month’s Family Law journal explores recent cases over the last 12 months, and examines how the courts approach such cases. He points out that on the death of an estranged spouse or former spouse, the court may well provide more generously for a claimant than was likely on divorce.

Two cases stand out in my mind, and the first of these proves Mr Ross’ point. A very grand couple was divorcing, and some of their marital assets were owned by a dynastic family trust hundreds of years old. A vast estate was wholly owned by the trust, and “loaned” by the trustees to the relevant beneficiaries. The couple enjoyed an enviable lifestyle during the marriage. Sadly the husband was diagnosed with cancer, but it was not believed to be terminal.

The couple agreed how the assets would be split. However, the husband died before the court had made an order that would have given the wife a clean break from her husband.

She was then able to make a claim under the Inheritance Act. All the other beneficiaries under the trusts were amply provided for – and after a long negotiation, with the consent of all concerned, my client obtained more than she had been about to receive in the divorce.

In the second case, the husband was my client. This couple had children, and had been married for a long time. The husband had fallen head-over-heels for another woman, and had left his wife. He felt bad about what he had done, but had made his choice. His financial settlement was generous: in return for no further maintenance liability to his wife, he paid over all his capital to her. This amounted to his interest in a modest house and some insurance policies which, in the event of his death, would provide for his family). He also agreed to pay generous maintenance to his children. He knew that he had not need to pay so much, but was committed to walking away from his marriage with the knowledge that his family was financially secure.

He bought a small house with his new partner. The purchase was funded by a capital payment from her, and a large mortgage with an insurance policy in place as security. Several years later he died in a road accident – and it emerged that he had not made a will. The insurance policy paid off the mortgage in full. As he had owned the property with his new partner as ‘beneficial joint tenants’, his share of the house passed to her automatically.

His former wife challenged this. She instructed solicitors to make a claim on behalf of the children under the Inheritance Act. When we wrote back refuting the claim, however, she never issued proceedings.

I suspect she was advised that she would fail. The court would have had a balancing exercise to make; given his new partner’s contribution to the property, and to the mortgage and insurance policies, they would have likely made an order that allowed her to stay in her home. The former wife had already received a generous settlement that provided for the family.

A third case, Staden v Jones (2008) EWCA Civ 936, was reported in this month’s Family Law. A husband agreed in writing that upon divorce, in consideration of his wife transferring to him her interest in the family home, he would undertake to pay his daughter 50 per cent of the net proceeds if the property was sold. If the property was not sold, he would “ensure this one half beneficial interest devolves to our daughter”.

Having thus acquired the wife’s share, he remarried. He continued to live in the property and – in breach of his agreement – transferred it to himself and his second wife, when the couple became beneficial joint tenants.

The man died, and the property automatically passed to the second wife. The daughter sued. The second wife claimed the agreement was unenforceable and in any event could only be brought by the wife, who was entitled to mere nominal damages. This argument was accepted at first instance; however, the Court of Appeal set aside the judgment and upheld the daughter’s claim. They found that there was a ‘constructive trust’ in her favour. It seems common sense to me – but this is Chancery law, which is a minefield.

My advice is as follows. Make a will that provides for everyone who is financially dependent on you. Last, but not least: honour your agreements.

Related posts:

1. A death in the family
2. Dirty Divorce Tricks – Part 2
3. Divorce, hidden assets and suspected fraud – what can you do?
4. Dirty Divorce Tricks – Part 1
5. Adultery, divorce and a modern-day “epidemic”