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4 Widows’ and widowers’ claims

Present law and purposes of reform

87 WIDOWS AND WIDOWERS may now make a property claim under the Matrimonial Property Act 1963⁴⁷ and a claim for maintenance and support under the Family Protection Act 1955. We propose that the rights of surviving spouses be extended. The principles which determine the size of these awards should be clearer. They should also be made generally consistent with the principles which apply to property and maintenance disputes between spouses whose marriages end by divorce.

Proposal in outline⁴⁸

Example 2:

Husband and Wife have been married for 25 years. Wife works part-time as a shop assistant. When Husband dies they own assets worth $300 000, all acquired during the marriage. The assets are all in Husband’s name. The couple have 3 children, the eldest of whom is 20 years of age when Husband dies. Husband leaves $30 000 to Wife. The rest is left to trustees, and Wife has only a life interest in the estate. When she dies or remarries, the children will have the estate. Wife makes a testamentary claim because she wishes to have greater control of the capital held by the trustees.⁴⁹

88 Under the Commission’s proposals (assuming equal contributions to the partnership), Wife may apply for a property division of $150 000, her share of the property. She can also seek a support award (probably a lump sum) to help her live independently. The size of that award is determined by the judge (for the amount, see para 113). The children may claim personal awards to meet educational and support needs (see chapter 6). The 20 year-old child may make his or her own claim. Wife, caring for the minor children, may make claims on their behalf.

89 By comparison, under the present law, Wife gets a property division award which the judge will decide. (On past experience, this will be approximately 30–45% of the value of the property.) The judge may or may not order that Wife’s life interest in the rest of the property be cancelled or reduced.⁵⁰

Alternatives

90 The proposal is preferable to these alternatives:

• Complete discretion (either in one combined award for property division and support or in two separate awards): This option is flexible. Awards can vary according to the circumstances of the surviving spouse and social values as the courts perceive them. But this can lead to inconsistent decisions which are difficult to predict.⁵¹ Widows’ and widowers’ financial security and independence is then put in doubt.
• Fixed share of will-maker’s property to widow or widower and wide discretion for support award: By splitting the support claim from the property division claim this option gives better direction to the courts. But with regard to the property claim, it takes no account of the survivor’s assets, major differences in contribution to the marriage partnership and the duration of the marriage. It can lead to arbitrary results depending on how much of the matrimonial property happens to be held by the will-maker. With regard to the support claim, it gives no clear direction about the amount of the support award and when it should be ordered.
• No discretion: Widow or widower automatically takes all of will-maker’s estate: This option is very simple and certain and helps to make surviving spouses financially self-sufficient. But it takes no account of the interests of children and others whose interests may differ from those of the surviving spouse. The survivor may be adequately provided for from their own resources or from what the will-maker has already given in the will. This option therefore goes beyond what is necessary to give effect to the shared vision of the family already referred to (para 28).

All of these alternative options are inconsistent with the law which applies to spouses whose marriages end by divorce.

Reasons for the proposal

91 PROPERTY DIVISION – Our proposal will make the law conform with well-accepted principles of matrimonial property between living spouses. In particular,

• it divides property equally, except where a case for unequal sharing is demonstrated;
• it brings into account property owned by both parties to the marriage;
• it assures a surviving spouse a share of capital at the end of the marriage; and
• it will be reasonably predictable in its operation, because when it departs from principles of equality it relies on established matrimonial property law.

92 SUPPORT CLAIM – Our proposal is based on a principle which will state explicitly when an award will be made, and if so, how much it will be. That principle will be discussed in more detail presently. It allows the court to take account of differences in economic circumstances and in the nature and consequences of each relationship.

Proposal in detail

93 THE CLAIMS ARE ELECTIVE

94 Widows or widowers, when making a claim, must challenge the entire will. They should not be allowed to attribute what is given to them under the will to (let us say) their property division, and then seek a further support award. Nor should they be able to make a support claim without first allowing the court to assess whether the underlying property-sharing arrangement is fair. However, if they make a claim, and the total amount the court orders for them is less than they expected, they may then drop the claim and keep what is given to them in the will.

95 The present law, by contrast, does not require the spouse to choose between a court property order and the provision already made by the will-maker. The courts’ practice in applying the law is varied. Sometimes surviving spouses are required to give up benefits received under the will in return for an award of capital. Sometimes they are not. This results in unpredictable differences in the value of awards.⁵²

96 A surviving spouse will have 3 years to seek a property division and make a support claim.⁵³ This is ample time for the survivor to find out how the will-maker’s provision for them operates and to take advice on what to do about it. But the administrator of the will-maker’s estate will not be legally obliged to defer distribution during this election period.⁵⁴ It is assumed that the tracing powers (Administration Act 1969 ss 47–50) will be adequate to protect the interests of surviving spouses even after the distribution of the estate (see chapter 10, paras 349–355).

97 The time period for bringing the claim will run from the date of the will-maker’s death. Under the present law, the time limits on claims usually run from the date of the grant of administration.⁵⁵ The reason is probably that there is no obvious defendant for claims against the estate until a grant has been made.

98 A time limit running from the date of death is generally to be preferred. When administration is granted, it relates back to the date of the will-maker’s death,⁵⁶ with the result that the estate has effectively been owner of the property and its income since that time. Sometimes property will pass directly to a new owner without the need for an administration. An example is where the deceased owns property jointly with another, who takes the whole property by survivorship.⁵⁷ Sometimes the estate can be administered under the will without the need for a formal grant.⁵⁸ If an executor neglects or does not wish to seek a grant, another may be appointed in their place at any time after 3 months from the date of death.⁵⁹ If no-one seeks a grant and there is no will at all, there appears, admittedly, to be no statutory mechanism for having an administrator appointed within 3 months from the death. But the court has inherent power to make an order for administration. There is statutory power to do so if the estate is insolvent.⁶⁰

99 PROPERTY DIVISION

100 The basic principles of the matrimonial property regime between living spouses will apply. They need very little adaptation, despite the fact that there are some differences where the marriage ends on death. The basic principles are still valid:

• the partnership home and chattels will be divided equally unless there are strong “extraordinary circumstances”, or the partnership is of short duration;
• other partnership property is divided equally unless one partner’s contribution to the marriage partnership is clearly greater than the other’s; and
• separate property is not divided, but is retained by the partner who owns it.

101 The Minister of Justice has asked his Ministry to progress reform of the Matrimonial Property Act 1976 and also legislation governing de facto couples’ property. The Commission does not yet know what these reforms will be. Property division between husbands and wives in the Draft Testamentary Claims Act is therefore based on the provisions of the Matrimonial Property Act 1976. Any changes in the principles governing property division would need to be reflected in these Draft Act provisions (see Draft Act, Subparts 1–3, paras C25–C29).

102 The Commission is not yet committed to any view on whether the married partners’ property division provisions, presently in the Draft Act, should ultimately appear in the Matrimonial Property Act 1976, or in a new Testamentary Claims Act. This is a matter the Commission will resolve in discussion with the Ministry of Justice (see paras C25–C29).

103 THE FORM OF THE PROPERTY DIVISION

104 Property can be shared out specifically, or the estate may retain the property and make cash payments instead. Where money is paid, this may take the form of one lump sum payment; or a series of payments over a period of time (as in the case of a life-interest). Once the lump sum value of the property division is settled, it is usually not difficult to determine what an equivalent payment would be, say until death or remarriage.

105 But courts should generally prefer lump sum divisions. They give claimants greater control over their shares of property, and make administration of the estate quicker and less expensive. Nevertheless, there may be cases where, in accordance with the wishes and interests of the widow or widower, the court should order periodic payments in satisfaction of a property division. Surviving spouses may sometimes think it is to their advantage to convert a capital sum into an income stream, though normally it will be the other way around.

106 THE PROPERTY DIVISION SHOULD BE RECIPROCAL

107 In theory, if property is held unequally between husband and wife, either should be able to reclaim their own property. It does not matter who dies first. In practice, however, the survivor will have a support claim. The survivor may advance this support claim in response to the administrator of the deceased spouse’s estate initiating the recovery of the estate’s share of the matrimonial property. The principle that division should be reciprocal is likely to be of greater practical value when both partners are dead.

108 Under the present law there have been a number of cases where this has been a convenient procedure for both estates. Although most of these cases arose from estate duty problems (estate duty has now been reduced to zero),⁶¹ the Commission sees no need to change the existing law on this point. It also provides a facility which may well prove useful to deal with future fiscal measures which cannot now be foreseen.

109 More importantly, it can give a spouse who dies first a greater opportunity than he or she has now to have a say in what happens to the common property.

Example 3:

Wife has children by an earlier marriage. She dies before her (second) Husband. She leaves her property to her children. However, 80% of the property acquired during the marriage is in Husband’s name. Wife’s estate is administered as regards what she owns. No claim is brought against Husband during his lifetime. On his death, he leaves all his estate to his own children. Wife’s estate can now make a claim to equalise the matrimonial property as at the date of her death. This enlarges the amount available to her children.

Wife’s estate must apply for the division within three years of Husband’s death.⁶² No time limit runs from the date of Wife’s death, because of the possibility of the application being countered by a support claim by Husband.

110 The Commission notes the decision of In re Anderson, Public Trustee v Pile (unreported, Court of Appeal, 10 November 1995, CA 116/94). The Court of Appeal expressed concern that in cases such as this the partner who died first may not appreciate the fact that she is disposing of what she thinks of as her property. This concern is reasonable in a context where little is generally known about what is likely to happen to matrimonial property on death. If (as we propose) the law is clearer, it will be much better known, especially since it accords with the division of property on divorce. This will require lawyers to take the property division into account when drafting wills. They may even take advantage of it to achieve additional protection for children of earlier marriages. For example, Wife in Example 3 (para 109) might leave her children “any rights I may have to a property division under the Testamentary Claims Act 199–, provided that they are not to be exercised until the death of my Husband, who until his death has power to dispose of any part of our property to meet his own personal needs”.

111 THE RELATIVE PRIORITY OF THE PROPERTY DIVISION ENTITLEMENT

112 This is a technical rule which can be applied, under the present law, to ensure that particular items are protected from the claims of creditors and others who are interested in the estate. This rule is discussed in Appendix B, which sets out proposals for resolving the relative priorities of claims when they compete with other claims and those of creditors.

113 SUPPORT CLAIM FOR WIDOWS AND WIDOWERS

114 The basic principle of support is just sharing of the financial consequences of the marriage partnership. This is not a new concept. The Family Proceedings Act 1980 recognises it where separated spouses are both alive. But it is not often used there, largely because both living spouses require financial support during the period immediately after separation. It is of greater value where a marriage is ended by the death of a spouse. It can be stated as follows:

The price of enjoying the advantages of unity in a marriage partnership is the just sharing of the financial burdens for each spouse when the partnership ends. Often the united lifestyle of spouses during a marriage partnership will be achieved at the expense of a surviving spouse’s ability to achieve a reasonable, independent standard of living. The will-maker’s estate should carry these burdens for the survivor until it is reasonable to expect the survivor to support herself or himself.

115 This principle can be applied flexibly to surviving partners whose circumstances are widely different. If the marriage is of a shorter duration and its ascertainable financial consequences for the surviving spouse are less significant, support of a transitional nature only may be appropriate. In cases where the marriage is of a longer duration, and its ascertainable financial consequences for the surviving spouse are more significant, support for longer periods, perhaps for the rest of the survivor’s life, will be appropriate. In any case the court will make clear to the surviving spouse the period during which he or she can rely on support from the estate.

116 The following are examples of how the principle operates:

• Husband, a trained artist, provides child care for the three children of the 12-year marriage. Husband also manages the home, making a little income through his work, and having to rely predominantly on Wife’s income. After Wife’s death Husband is unable to maintain a reasonable, independent standard of living. The financial consequences of the marriage for Husband are significant. His immediate custodial responsibilities for the children, and his work history, make it unreasonable for him to support himself through suitable and rewarding paid employment. He can claim support from Wife’s estate.
• Both spouses are at the time of marriage retired superannuitants whose previous marriages ended on the death of their spouses. Throughout their 10-year marriage both spouses receive New Zealand Superannuation and draw on their independent savings, each contributing to household management. The financial consequences of the marriage for the surviving spouse are less significant. When the other dies, each spouse can reasonably be expected to sustain a reasonable, independent standard of living. Only a transitional support award need be made.
• Wife cares for two children of the marriage and manages the household. The financial consequences of the 40-year marriage are significant. When Husband dies it is, and will probably always be, unreasonable for Wife to return to paid work as a nurse. One reason for this is that Wife is increasingly affected by a medical condition. Another is that Wife’s paid employment is disrupted by changes in Husband’s employers and workplaces. Wife is 59 years of age. Wife may claim support.
• Husband, an alcoholic who is not in paid employment during the 20-year marriage, does not work or contribute significantly to household management or child care. The family income comes from State welfare benefits and Wife’s part-time, and later full-time, paid work. The administrator of her estate shows that the financial consequences of the marriage for Husband were insignificant. Husband does nothing to reduce his need for support. It is reasonable to expect Husband to support himself immediately.

117 The financial consequences of the marriage will often be significant. One example is that of the retired couple who after a long marriage live off their accumulated savings. Both earner and non-earner spouse will have lost opportunities to acquire and keep financial assets. During the marriage their resources will have been used to support the family and the couple’s lifestyle. Another common example is where the surviving partner is left with minor children to look after.

118 TIME LIMIT ON SUPPORT CLAIMS – Widows and widowers must make support claims within the period of three years from the date of death of the will-maker. (For discussion of the standard three-year time period within which all claims must be made, see paras 349–355).

119 RELATIVE PRIORITY OF PROPERTY DIVISION AND SUPPORT CLAIMS – Appendix B sets out proposals for resolving the relative priority of creditors’ claims, contributors’ claims, property division claims and support claims. (See chapter 5, paras 158–171, for priorities as between competing marriages and de facto partnerships).

120 WELFARE AND SUPPORT

121 We are concerned here only with State-funded welfare which is means-tested. When the State provides a benefit “universally” (irrespective of the claimant’s financial position), a will-maker should always be able to rely on the claimant continuing to receive that benefit, and to make provision accordingly (as the present law provides: Family Protection Act 1955 s 13).

122 The property division is based on contributions made by the partners. The resulting matrimonial property belongs to both. When a person applying for means-tested welfare can make a contribution-based testamentary claim (either a property division or the contributors’ claim in chapter 9), the amount of this claim should be taken into account, even if not actually sought, in any welfare test of that person’s financial position. The argument can be made, persuasively in the Commission’s view, that the accumulation of assets by couples has been the product of a variety of factors external to a couple, including State welfare, housing, labour and taxation policies. Over a lifetime these factors may assist, for example, in the acquisition of a privately owned family home. At least part of this accumulation can reasonably be expected to support the couple in the last stages of their life, rather than going to the couple’s children, who will already have enjoyed the benefits of these factors as income spent rather than saved.⁶³

123 The support claim, however, is different. There appear to be no strong policy reasons for including a surviving partner’s support claim in any welfare test of his or her financial position. Once a surviving partner is treated as having received a property division, anything that remains in the will-maker’s estate is not the property of the surviving spouse and should not be counted as such.

124 The support claim by its nature is an elective claim: the surviving partner chooses whether or not to bring it against the estate. Surviving partners should not be compelled to make support claims when they choose not to do so. They may in many cases prefer to respect the will-maker’s wishes. That choice may leave them dependent on other family members or on welfare. But to require them to make the claim intrudes unfairly on family life. In the absence of compelling policy reasons the support claim should be included in welfare tests of the survivor’s financial position only when he or she chooses to make it.⁶⁴

125 If, however, the survivor’s property claim award falls below 50% of the combined property of the husband and wife, different considerations apply. Except in unusual cases, one would expect that the addition of a support claim will bring the survivor’s entitlement up to 50% of the property, and probably higher. A general rule that fixes the survivor’s share presumptively at 50% is helpful. For that amount is taken as the value of the survivor’s entitlements for welfare processes. Similarly, where (as in the case of a marriage of short duration) it can be shown that the survivor’s total entitlement will be less than 50%, the 50% entitlement will also be taken as the value. Generally, the Department of Social Welfare should be able to operate on presumptive values. In this way minimal pressure is put on the survivor to make a claim, and to settle a claim on terms more favourable to the survivor than he or she wishes to obtain.

126 The practical effect of these proposals is that a ceiling of half the couple’s property would be the maximum available to reduce social welfare benefits and subsidies, unless the couple themselves make more favourable arrangements for the survivor, or the court orders that the wife receive more than 50% of the estate.

Example 4:

Husband dies, leaving an estate comprising a house worth $200 000 and $100 000 cash. He is survived by his widow and their adult son. All Husband’s property is left to the son. The widow has no property in her own name. She makes no claim against the estate, and goes to live with her son. She claims the widow’s benefit. She can be assessed as having received a notional income of $150 000 so that her widow’s benefit will be reduced accordingly.

This method of assessment is particularly important when the couple are elderly and there is a possibility that the survivor will be financially assessed with a view to entering long-stay residential care. It is described in more detail in Appendix D.

127 The Commission considers that only a proportion of the couple’s assets should be compulsorily assessed in this way. This is supported by referring to current practice in taxation and welfare matters. There appears to be no compelling reason of policy, and no general principle of fairness, which requires that a poor, unwell or disabled person who requires professional care or welfare support should be primarily supported by their spouse out of both income and assets. If there is, it is not generally evident in the present social welfare and taxation legislation.

128 It is true that welfare support often diminishes when a beneficiary is in a marriage relationship. Yet when partners are living apart, the State seldom expects one partner to exhaust income or assets before the other partner seeks State welfare (see Appendix C). The position on death is confused, and the law has not kept up with current testamentary claims legislation. But it would not fit in with the general pattern of welfare law to expect the entire estate of a dead partner to be applied in payment of the support costs. To require that would make it impossible for partners to recognise other testamentary obligations.

129 These proposals, in the Commission’s view, will make the survivor’s rights on the death of a husband or wife much clearer and more predictable than they are now. They will protect the survivor in their dealings with the estate, by providing a clear indication of what will be achieved if proceedings are brought. They will also establish a firm basis on which the survivor can deal with the Government in welfare and other fiscal matters in which the amount of the survivor’s entitlement needs to be investigated.