In the first reported judicial consideration of Section 11 of the Inheritance (Provision for Family and Dependants) Act 1975 ("the 1975 Act"), the court found that an agreement reached on divorce amounted to a collusive settlement. However, the fact that full consideration had been given was sufficient to successfully defend against the s.11 claim, raising questions both for Private Client practitioners and Family lawyers as to how agreements to leave property by will might be subsequently treated.
The purpose of section 11 of the 1975 Act is to prevent testators from transferring assets/monies from their estate by way of contract in order to defeat any potential claims under the 1975 Act.
In Sismey v Salandron the claim was brought by Thomas Sismey ("Thomas"), the son of the deceased, who relied on an agreement reached between his parents in their divorce in 2013 whereby their matrimonial home would be left to Thomas by his father in his Will. The agreement was enshrined in a Consent Order and endorsed by the father's partner at the time (Ms Salandron, who he already had a child with) to confirm that she understood that she would have no claim on the property.
The father became unwell, and before he died he married Ms Salandron so that she could have a claim to the widow's benefit from his pension (worth several hundreds of thousands of pounds). The consequence of the marriage was that his Will was revoked. Thomas made a claim against his father's estate on the basis of a breach of contract. In response, Ms Salandron claimed that the deed of covenant by which his father had agreed to leave the house by Will was not enforceable because it did not comply with Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, and in the alternative that the Court should exercise its discretion under Section 11 of the Inheritance Act 1975 and order that the house be transferred to her.
The Court considered emails between Thomas' parents relating to the Consent Order and found that there was evidence that the divorce settlement was ‘collusive’ and may have prejudiced Ms Salandron. Nonetheless, it upheld the agreement. In making its decision, the Court found that full consideration for the property transfer was given by both Thomas' mother and father, given that rights to the father’s pension had been safeguarded as a result of their agreement. The test for Section 11 could not be fully met (as consideration was held to have been given) and as such the Court ordered that the deed of covenant, giving the property to Thomas, took precedence over Ms Salandron’s claim under the 1975 Act.
The ruling will have wide implications for estate disputes, family and wealth planning practitioners.
Thoughts from a family law perspective
The case demonstrates how important it is to obtain, where possible, a clean break on divorce. The Court's finding of collusion (which is rare when the divorce settlement has been approved by the Court, as this one had been) poses questions as to how such settlements should be drafted and whether a covenant to leave property by will should be included, especially given it can be overridden by the Court considering an application under the 1975 Act. Many divorcing couples want to provide for their children at the point of divorce, and wish to protect that provision in the event that one of them may re-marry and have more children. As a result, conversations such as those examined by the court in this case are often part of financial negotiations. This case means further thought will need to be given to how best to preserve assets for a client's children.
Of further concern for family practitioners is that once the Consent Order is approved by the Court, it is enforceable, and the parties can usually move on. This case however implies that a Judge in the Chancery Division can re-consider an Order already approved by a Family Judge (and whilst referencing Haines v Hill, possibly not take on board its effect that the fact of a Judge approving the Consent Order means that consideration has been demonstrated). As such, it may be worth considering recording the fact that consideration has been given on the face of an Order to pre-empt future analysis of this issue by Judges in separate Divisions.
Thoughts from a private wealth dispute perspective
Whilst Ms Salandron's s.11 claim failed, it is notable that the Judge did not address in any way the fact that she and her minor son lived in the Property, which would now be owned by Thomas. Although the Judge did satisfy herself that Ms Salandron had surplus income of c. £500 a month, there was no analysis of what this would afford her in terms of substitute accommodation. It is surprising that the Court did not have more sympathy toward Ms Salandron and her minor son (notwithstanding the strength of Thomas' legal arguments), given its decision made them effectively homeless.
It is also of interest that the Judge found that Thomas' father did enter into the deed of covenant with the intention of defeating a 1975 Act application. The Judge's analysis of s.11 included the following conclusions:
- The intention to defeat an application does not have to be the sole intention, provided it is one of the intentions;
- The intention does not have to relate to defeating the 1975 Act in particular (however on these facts the Judge found that was in mind); and
- In these circumstances, Thomas' father's intentions had to be looked at from before the Order was entered into, i.e. the court had to look behind the Order to the emails and documents exchanged in the negotiations.
Takeaway points for practitioners include the following:
- In this case, the divorcing spouses conducted the vast majority of the negotiations themselves, without lawyers. These emails were disclosed, and made for illuminating reading, making it very clear that they were both concerned with protecting the assets from the future wife/partner's claims. Often such negotiations would take place between legal representatives, which is likely to result in the tone of correspondence being more carefully considered.
- Even if it is understandable for a divorcing spouse to want to protect those assets left to them/their children as part of the divorce settlement, the key consideration by the Court in s. 11 applications will be what the deceased's intention were. On these facts, if the deceased was party to the same concerns, it could be viewed as collusion.
- As the Judge found there to have been 'collusion' between the divorcing spouses (and despite the position in Haines v Hill that a Family Judge having already approved a Consent Order meant consideration had already been demonstrated), she undertook her own analysis of the agreement in order to establish if there had been sufficient consideration provided. The Judge's analysis [84] was, however, almost solely based on what could be gleaned from the emails disclosed, which provided a lot less information than might have been available had the parties been using lawyers to communicate. A practical comment from the Judge [84] in this regard was that: "The complexity of [this] exercise is exacerbated by the fact that the Deceased and [Thomas' mother] only relied on ad hoc legal advice such that there was never any detailed professional analysis of the respective merits of each party's position." Looking through the information that was available, the Judge could see that various valuations and pension reports were incomplete, which did not assist this exercise. Further, she also referred to the divorcing spouses' litigation risk, and the need for that to be reflected in the analysis of the agreement [88]. Ultimately, she concluded that there was sufficient consideration provided by Thomas' mother in exchange for the deed of covenant, however the suggestion by the Judge was that Ms Salandron would have had a hard time evidencing otherwise, given the paucity of relevant analysis in the papers.
Finally, there was some brief analysis which will interest contentious trust practitioners, which touched on the potential parallels between i) a divorcing spouse waiving their claims being equal to having given consideration, and ii) a divorcing spouse waiving their claims being equal to having relied on an agreement to their detriment (in the context of a constructive trust argument).