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Appendix B

Proposals for Priorities Between Claims

A9 WHEN THERE IS insufficient property to satisfy all claims against the will-maker’s estate, it is necessary to resolve the order in which the available property will be allocated to claims (see Example 16, para A11). Claims against the estate include not only the testamentary claims against the estate proposed in this paper (contributors’ claims, property divisions and support claims), but also creditors’ claims against the estate under the general law (of contract, estoppel, trusts and restitution, paras 291–292).

A10 The following two sets of propositions are a guide to how the courts will resolve the relative priorities of testamentary and creditors’ claims against the estate under our proposed legislation (see Draft Act, Part 5, Subpart 5, ss 55–56). They are tentative only at this stage, pending a Government decision on what will happen under proposed new legislation governing the respective priorities of partnership property applicants and creditors. They may also alter in line with further proposed legislation governing claims between living de facto partners.

Ranking of testamentary claims as against creditors’ claims

1 Contributors’ claims rank

1.1 equally with personal liabilities of the will-maker under the general law; but

1.2 as with constructive trust claims under the general law, the court would have power, when it considers it just, to permit contributors to make proprietary or tracing claims against specific assets or property comprised in the estate, which would confer priority over other creditors.

2 Property divisions rank so that

2.1 the provisions of the Matrimonial Property Act 1976 ss 19 and 20(1) apply, that is

2.2 the court would have power to recognise proprietary claims against specific assets or property comprised in the estate, and

2.3 the provisions of the Matrimonial Property Act 1976 s 20(2) apply (protected interest of $61 000 – SR 1992/97 – in matrimonial home or its equivalent);

2.4 but otherwise property divisions would rank after creditors.

3 Support claims rank after

3.1 creditors’ claims, and

3.2 contributors’ and property division claims.

Ranking of testamentary claims between themselves

4 Contributors’ claims rank

4.1 as against other contributors’ claims, proportionately (but may gain priority under 1.2);

4.2 as against property divisions, in priority (subject to 2.2); and

4.3 as against support claims, always in priority.

5 Property divisions

5.1 as against contributors’ claims, have no priority (subject to 2.2);

5.2 as against other property divisions:

a where relationships are successive, the first to arise has priority; and

b where relationships are contemporaneous,

i each division is made against the pool of property the court can justly attribute to each relationship, failing which

ii each division ranks proportionately to the contributions of each partnership; and

5.3 as against support claims, always have priority.

6 Support claims

6.1 as against contributors’ claims, have no priority;

6.2 as against property divisions, have no priority; and

6.3 as against other support claims, rank proportionately.

A11 Example 16:

Will-maker A leaves all her estate worth $300 000 to her de facto partner C. She leaves nothing to

(a) her ex-husband B, who advanced the money to buy the bach she owns, and who has an unsatisfied property division (on balance) of $100 000;

(b) her minor children, E and F, aged 13 and 17, who have support claims of

$25 000 and $15 000 respectively;

(c) her adult son D, who has spent a lot of time painting and improving her bach, and whose contributor’s claim is valued at $30 000.

(a) D as a contributor ranks first (1.1). B’s property division ranks second (5.1). It takes priority (5.2.a) over C’s property division since it is first in time. E and F’s support claims rank last, but take precedence over C’s (6). Between themselves E and F’s support claims rank in proportion (25:15) if the balance after the meeting the other claims is insufficient (6.3).

(b) B may seek to advance his claim over D’s by alleging a constructive trust over the bach (2.2). To this, D might respond by advancing his own constructive trust claim (1.2). If successful in this, they would both share in the proceeds of the bach in proportion to the value of their relative contribution to it. (This assumes that their contributions were greater than or equal to the value of the bach. Otherwise there would be a balance left for the other claimants.)

(c) B may also seek to advance his case by relying on the matrimonial home exception from creditors’ claims, assuming A had assets which could be attributed to the (non-existent) matrimonial home (2.3). This would take priority over D’s personal contribution claim (1.1). It would not, however, take priority over any constructive trust claim D would have: see (b) above.