Will a settlement reached on divorce stand up to an Inheritance Act claim?

Sismey v Salandron [2021] All ED (D) 25

The background

Sheila Sismey (Sheila) and David Sismey (the Deceased) met in 1984 and began a relationship very shortly thereafter. The Deceased purchased a property in Belper, Derbyshire (the Property) in his sole name in 1986 and the couple were later married in February 1988. Following their marriage, Sheila moved into the Property and in 1993 they had a son, Thomas.

The Deceased’s job took him abroad and, in 2002, he met and formed a relationship with Marissa Salandron (Marissa), who lived in the Philippines. The Deceased told Sheila about his relationship with Marissa in 2005 and Sheila and Thomas subsequently moved out of the Property and into a house which Sheila had purchased in 2004 with inheritance money received from her parents. The Deceased lived with Marissa in the Philippines for a number of years and it was not until 2012 that they relocated to the UK and moved into the Property on a permanent basis together with their son, John, who was born in 2008.

The Deceased petitioned for a divorce from Sheila and a decree nisi was granted in February 2013. At around the same time they began discussions about how their finances were to be dealt with and in July 2016 they applied to the Court for approval of a consent order concluding the financial remedy proceedings (the Consent Order). The Consent Order was approved on 3 February 2017.

What did the Consent Order say?

The Consent Order contained a recital confirming the Deceased’s undertaking “irrevocably to execute forthwith a Deed in the form annexed this order covenanting with [Sheila] to leave by will to [Thomas] [the Property] so as to be binding upon his personal representatives”. On the same day, the Deceased executed a Deed of Covenant (the Deed of Covenant) in which he covenanted “so as to bind his personal representatives to leave irrevocably in his lifetime by will [the Property]” for Thomas’ benefit. The Deceased later executed a will on 12 March 2017 (the 2017 Will) which gifted the Property to Thomas and divided his residuary estate equally between Thomas and John.

The Deceased was diagnosed with terminal cancer in July 2019 and he married Marissa on 9 October 2019. As a matter of law, the effect of the Deceased’s marriage to Marissa was to revoke the 2017 Will. The Deceased died on 28 January 2020 without making a new will and his estate therefore fell to be distributed in accordance with the Rules of Intestacy. The net value of the Deceased’s estate was just over £200,000 with the Property making up £190,000 of that figure. Accordingly, under the Intestacy Rules, Marissa stood to inherit the entire estate as the Deceased’s spouse and she extracted a Grant of Letters of Administration in May 2020 and subsequently transferred the Property into her sole name.

What about the Deed of Covenant signed by the Deceased in the divorce proceedings?

Following the Deceased’s death, Thomas issued a claim seeking to enforce the Deed of Covenant. He also argued that the Deed of Covenant created a constructive trust in his favour and that Marissa was therefore holding the Property on trust for him. Marissa defended Thomas’ claim and contended that the Deed of Covenant was unenforceable. She also denied that a constructive trust had arisen in Thomas’ favour.

Did Marissa have her own claim?

In response to Thomas’ claim, and in the event that he was successful in enforcing the Deed of Covenant, Marissa issued her own claim for reasonable financial provision under the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act). Marissa relied on section 11 of the 1975 Act which provides that if the Deceased contracted to leave money or property by will with the intention of defeating a claim for provision under the 1975 Act in circumstances where the recipient of the money or property gave no consideration for the contract the Court may make an order requiring the money or property to be made available for the purposes of making an award under the 1975 Act. If successful, this would mean that the Property would form part of the Deceased’s estate and could be used to satisfy a claim by Marissa under the 1975 Act.

What did the Court decide about the Deed of Covenant?

Having considered the wording of the Deed of Covenant, the Court held that it was an enforceable document and that it complied with the provisions of section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989.

What about Marissa’s claim for reasonable financial provision?

In order to succeed in her claim, Marissa first needed to establish that the Deceased intended to defeat an order for financial provision under the 1975 Act by entering into the Deed of Covenant. In considering this issue, the Court held that it was necessary to consider the Deceased’s intention when he was negotiating the terms of the Consent Order with Sheila and found that, as a matter of fact, one of the Deceased’s aims had been the need to secure the Property against potential claims. This was enough to satisfy the first part of the section 11 test.  

Next, Marissa needed to persuade the Court that no valuable consideration was given by Sheila when the Deed of Covenant was made. In doing so, she needed to defeat Thomas’ argument that full consideration was given when Sheila agreed to compromise her claims under the Matrimonial Causes Act 1973 on divorce and, specifically, her claim against the Deceased’s pension and her share of the Property.

The Court held that, as a matter of fact, the terms of the Consent Order had been favourable to the Deceased and that Sheila had made a “real sacrifice” by foregoing her potential claims in the divorce. The Court also gave serious consideration to the fact that the Family Court had scrutinised the terms of the Consent Order and had approved it in the divorce proceedings. This part of the section 11 was not met.

What was the final outcome?

Thomas succeeded in his claim to enforce the Deed of Covenant and was therefore able to compel Marissa, as the personal representative of the Deceased’s estate, to transfer the Property to him. Marissa was not able to establish the necessary elements of the test under section 11 of the 1975 Act to bring the Property back into the estate and, so, given that she was already in receipt of the remainder of the Deceased’s assets there was nothing else which could be awarded to her under the 1975 Act; her claim failed.

What can we learn from this case?

This is an important decision as it highlights the uncertainty which can arise if agreements are reached in a divorce to leave property in a will. This is the first time that section 11 of the 1975 Act has been considered by the Courts and demonstrates that a contract resulting from a divorce may be open to attack if the requirements of section 11 are met and there is a strong claim for financial provision under the 1975 Act.

Our specialist Contentious Trusts and Probate Team at Birketts have a wealth of experience advising in relation to claims under the 1975 Act, both on behalf of claimants and defendants and will be happy to assist if you have any queries. Birketts’ Family Team are also experts in the field of negotiating settlements in divorce and can help to ensure that all relevant matters are considered when reaching an agreement.