Sofie Hoffman and Sharon Kenchington look at 1975 Act claims by a surviving spouse and the recent case of Lilleyman v Lilleyman  EWHC 821 (Ch).
One of the difficulties in advising a party (whether claimant or defendant) to a claim brought by a surviving spouse pursuant to the 1975 Inheritance (Provision for Family and Dependants) Act ("the 1975 Act") is that each case is fact-specific. There is no consensus among legal advisers as to whether the value of a claim should be approached on a pure needs basis and to what extent the concept of the "divorce fiction" should be applied in analysing what constitutes reasonable financial provision.
The recent decision in Lilleyman v Lilleyman  EWHC 821 (Ch) has helped to highlight the way the Judiciary in the Chancery Division are approaching spouses' claims under the 1975 Act in circumstances which are referred to in matrimonial proceedings as "short-marriage - big-money" cases.
Mr and Mrs Lilleyman were each previously married and had children by those marriages. They were married to each other for two years preceded by a short period of co-habitation. Mr Lilleyman died prematurely at the age of 64 and Mrs Lilleyman had given up her two part-time jobs to spend more time with him as his condition deteriorated.
The bulk of the estate (which totalled £6,000,000) comprised shares in family companies in which Mr Lilleyman's two sons (the defendants to the claim) were employed. The matrimonial home, worth £240,000, was held by the couple as tenants in common in equal shares but there was no significant mingling of other assets. Mr Lilleyman owned an apartment in Bournemouth which was purchased during the marriage and Mrs Lilleyman had a 50% beneficial interest in a property occupied by her elderly Mother, worth £77,500. The Judge also ruled at the hearing that Mrs Lilleyman was the sole beneficial owner of a further property (subject to an option to purchase in favour of her son). Mrs Lilleyman had approximately £27,000 of liquid assets and an income of just over £11,000 a year. Her annual income requirements were accepted by the Judge to be £32,000.
Counsel for the defendants submitted that reasonable provision for Mrs Lilleyman was to be determined solely by reference to her reasonable needs, whereas Counsel for Mrs Lilleyman argued that reasonable provision called for the sharing principle to be applied which would result in her being awarded a substantial share in what had been the parties' matrimonial home, in excess of her reasonable needs.
In addition to the range of factors which a Court is required to consider in assessing what constitutes reasonable financial provision for a surviving spouse, Section 3(2) of the 1975 Act requires the Court 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 determined by decree of divorce". In his Judgment Mr Justice Briggs referred to this requirement as the "divorce cross-check" although it is also known to practitioners as the "divorce fiction". The Judge summarised the divorce principles relevant to the circumstances of the case, namely that the division of available property on a marriage breakdown must be conducted on the basis of fairness and non-discrimination and that this concept gives rise to three requirements; financial needs, compensation and sharing
Mr Justice Briggs held that the Will did not make reasonable provision for Mrs Lilleyman and made a clear distinction between Mr Lilleyman's matrimonial and non-matrimonial property when applying the "divorce cross-check".
In determining what provision should be made, the Judge followed the arguments put forward by Mrs Lilleyman's Counsel who relied largely on the principles set out in Miller v Miller  2 AC 618. The Judge summarised the legal principles which have emerged from that case (and subsequently) as follows:
- The onus of proof lies upon the person asserting that the property is non-matrimonial;
- A matrimonial home is usually regarded as matrimonial and family property, even if that home was contributed solely by one spouse;
- Property acquired during the marriage, other than by inheritance or gift, is usually matrimonial property, but part of it may not be deemed family property if it has not been acquired for family use;
- Pre-owned property brought to the marriage by one spouse is usually not regarded as matrimonial property unless it is committed to family use;
- Where one spouse brings an existing business to the marriage and develops it during the course of the marriage, the value of that business at the outset may be regarded as non-matrimonial, but any increase in value during the marriage may be part of the fruits of the partnership (even if the increase wholly derives from the activities of one spouse); and
- Where one spouse brings a pre-existing family business to the marriage it may be unfair to have recourse to it for the purpose of applying the principles of equal sharing particularly if that might cripple the business or deprive it of much of its value.
The Judge considered that the total matrimonial property amounted to £1,475,000. On a strict equality basis, 50% of that sum would have been applied to Mrs Lilleyman had the marriage been terminated by divorce. However, the short duration of the marriage meant that the sharing principle should not apply to the businesses (save for a small share of the increase in value of the companies during the marriage) and taking this into account the Judge said that a transfer from the estate of around £500,000 gross would constitute reasonable financial provision. This was to be effected by the transfer to Mrs Lilleyman of the estate's share of the former matrimonial home and the outright transfer to her of the Bournemouth property (or a lump sum representing its agreed market value).
Mr Justice Brigg's judgment makes it clear that following White and White  AC 596 and Miller v Miller (ibid) the divorce principles which have emerged in the family division in "short-marriage, big-money" cases are being treated by Chancery Division Judges as constituting one of the factors which the court must take into account in determining what amounts to reasonable provision for a surviving spouse.
The fundamentally different approaches to Mrs Lilleyman's claim, namely whether provision for her should be assessed purely on a needs basis or whether the sharing principle should be invoked in relation to the whole of the deceased's estate, meant that the parties were unable to reach an acceptable compromise and it was left to the Judge to determine how the legal principles should be applied.
However, even where parties agree that a Will does not make reasonable provision for a spouse, reaching an early negotiated settlement (whether by mediation or otherwise) can prove difficult.
One problem that parties can encounter is ensuring that they have sufficient information about the needs and resources of the claimant to properly assess the likely award that the Court might make at trial. Disclosure is not a standard direction under Part 8 (the requisite format for 1975 Act claims). The expectation is that the claimant's witness statement will exhibit documentary evidence (for example copy bank statements and vouchers) in support of the claim. Such information may be insufficient for the defendants to assess whether the spouse's claimed current income and expenditure levels are accurate and whether given values are correct. If the defendants are not satisfied with the documentary evidence provided, it is open to them to make specific requests for disclosure or to make formal requests for information pursuant to Part 18 of the Civil Procedure Rules. Making such requests will necessarily increase costs and may cause delay while the claimant gathers and provides the information requested, but if supporting documentary evidence is not forthcoming it will be difficult for the defendants to put forward a properly considered Part 36 offer or to make a sensible offer of settlement at a mediation. Similarly, the claimant may also consider it necessary to seek further information regarding the composition and quantum of the estate and/or the defendants' own resources.
Ultimately, there may come a point during negotiations where the parties decide that they are unlikely to uncover any further information and, where the claimant is a surviving spouse, a settlement may be structured by taking advantage of the "reading back" effect of s146 of the Inheritance Tax Act 1984 and the availability of the spouse exemption. As a result the defendants might be prepared to accept an offer which gives the spouse a larger settlement than he or she would be likely to receive at trial.
Mr Justice Briggs' separate costs Judgment in the Lilleyman matter (Lilleyman v Lilleyman  EWHC 1056 Ch) emphasises the importance of making informed Part 36 offers as early as practicable, so as to obtain the costs protection that such offers provide.It is also a reminder that the Court retains a discretion under Part 36, which it will exercise if it considers that the conduct of the parties was such that the "automatic" costs consequences under Part 36 will not necessarily apply in full.
In Lilleyman (ibid) the claimant made a Part 36 offer to settle for £600,000 in April 2011.
On 27 July 2011 the defendants made a Part 36 offer to settle for £450,000, plus the transfer of two properties into the claimant's name and £18,000 for the deceased's chattels ("the July Part 36 offer"). Simultaneously they made a without prejudice offer to buy the claimant's interest in a further property for £30,000 in addition to the amount offered in their Part 36 offer making a total offer of £568,000 if the claimant wished to sell the deceased's chattels. The claimant did not accept either offer.
The claimant made further without prejudice offers in late 2011 and in January 2012 the defendants made another without prejudice offer. The January offer referred to the defendants' earlier without prejudice letter and stated that the defendants "withdrew that offer". The claimant submitted that this meant a withdrawal of the July Part 36 offer, but the Judge held that it simply meant a withdrawal of the without prejudice offer and that the July offer remained in place (and open for acceptance). The defendants' January 2012 offer repeated the same terms as the July Part 36 offer as well as offering payment of the claimant's costs at £40,000 and was made on the basis that the claimant would pay the defendants' costs incurred since the July 2011 Part 36 offer on the standard basis.
The claimant then made a final Part 36 offer.
Mr Justice Briggs held that the Court's award did not beat the defendant's July Part 36 offer. In making his costs order the Judge held that it was not unjust for the claimant to be ordered to pay the defendants' costs after the expiry of the relevant period specified in the CPR ( in this case 17 August 2011), but taking into account the parties' conduct during the proceedings she should only pay 80% of those costs. In particular the Judge noted that until their closing speech the defendants had maintained that the Will made reasonable provision and that, although both sides had conducted the litigation on a "no-holds barred" basis, most of the responsibility for that approach lay with the defendants.