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A woman who was widowed mere hours after getting married has been ordered by the Court of Appeal to honour a promise her husband had made to his ex-wife. Kathleen Soulsby married her husband Owen in 2000 at the London hospital where he was being treated for leukaemia. He was divorced from his ex-wife, Elizabeth, in 1986 and they had agreed a settlement under which he was to pay her £12,000 a year plus maintenance for their children. In 1993, he agreed to give her £100,000 on his death in exchange for being relieved of the obligation to pay further maintenance payments. His will was altered to give effect to the agreement. Under UK law, however, marriage invalidates any previous will and Kathleen argued that the bequest was therefore invalid. The Court of Appeal considered that the agreement between Owen and Elizabeth was enforceable. She had ceased to receive maintenance in 1993 and had not pursued him for the payments. She had therefore complied with her part of the bargain and his estate was bound to honour his side of it. Says Julia Korona, “It is often forgotten that marriage or civil partnership invalidates an earlier will. It may not be very romantic, but it is practical to make sure that after the ceremony a new will is executed as soon as is practicable.” Partner Note A recent House of Lords case has emphasised that when there is a break-up of a relationship and there is joint legal ownership of the house, the division of the value of the house will depend on what the couple’s intentions were. All of the relevant circumstances need to be taken into account. In the case in point, the fact that the couple maintained separate financial arrangements was germane to the decision. But what is the case when the owners of the house are not a couple, for example where the property is owned jointly between family members of different generations? In one such case, a woman died and the property she lived in was owned jointly by her and her son. There had been no declaration of what proportion of the house each owned. Each had contributed equally to the household expenses and mortgage until the mother and son had quarrelled, at which time he moved out and the mother then met all of the mortgage payments herself. The son claimed a beneficial interest in the property and this was contested by the woman’s other beneficiaries. The judge hearing the case considered that the purpose of buying the property was to provide a home for the mother, who could not obtain a mortgage on her own. Mother and son had kept their finances separate and the solicitor who acted for them on the purchase considered that there was no intention that the property should be beneficially jointly owned. Furthermore, the judge considered that the mother would not have wished to deprive her other children of a share in her property. The court therefore ruled that the son had no beneficial interest in the property. In another case, a divorced couple bought a property with a view to being reconciled. The property was put into the husband’s sole name. When the relationship failed again, he left and his ex-wife remained living in the house. The court ruled that because the husband had given his ex-wife assurances that she could remain in the property as long as she wished, it could not be sold by her ex-husband without her consent. Says Julia Korona, “Houses are usually the major asset of a family. It is therefore advisable to make sure that any details regarding the ownership of, and people’s rights to, the family home are put down clearly in proper form when the property is acquired. This may save a great deal of expensive argument later.” Partner note Recently, the newspapers have once again been featuring the plight of British people who have bought foreign properties (this time in Spain) only to discover that there are defects in their title, the ramifications of which can be catastrophic for the owners as their dream of a place in the sun turns into a nightmare. It is estimated that 400,000 Britons have homes abroad and there are many amongst that number who have had problems which could have been avoided had they been more circumspect in their dealings. Here are some of the things you need to take into account if you are considering buying abroad:
If you are thinking of buying a foreign property, do make sure you take even more care than you would at home, where at least you have the benefit of understanding the system. Partner Note For further information please contact Lorraine Moser Child Custody – Expert Evidence Crucial A judge who in her verdict in a child care case failed to give adequate reasons for departing from the clear evidence of experts recently found her decision overturned by the Court of Appeal. The case dealt with the residency arrangements for four children whose parents were getting divorced. The mother of the children had a long history of addiction to amphetamines. At the custody hearing, evidence was given to the court that she had tested negative for use of amphetamines at the time of the hearing, but there was evidence of earlier use. The mother claimed that she had ceased to use drugs altogether. A psychologist, a psychiatrist and a social worker submitted reports suggesting that a residence order should be made giving custody of the children to their father. Surprisingly, the judge ordered that the children should reside with their mother on weekdays during the school term-time. The father appealed against the decision. The Court of Appeal was of the view that the judge had placed a disproportionate amount of weight on the mother’s evidence and had not given a good reason for taking a decision which differed so sharply from the opinion of the experts. The Court ruled that the residence arrangements should be referred back to another judge to determine. Says Stephen Harris, “It is not often that judges ignore clear expert evidence in such cases and, when they do, it is incumbent on them to give sufficient reasons for so doing. It is very important to use an expert who is good at presenting evidence clearly. We ensure that clients relying on experts for evidence use those who are well-qualified and experienced.” Partner Note Family Gifts Part of Marital Assets When couples divorce, their assets can be considered to arise from two sources. There are the assets created during the marriage, which are called ‘marital assets’, and those which are brought into the marriage by the spouses individually, termed ‘non-marital assets’. The normal assumption is that marital assets will be divided more or less equally, but that assumption does not hold as regards the non-marital assets. Needless to say, there is often a dispute over whether assets are marital or non-marital. Recently, a man appealed against an order which ‘ring-fenced’ assets that had been given to his ex-wife by her family. These were regarded by the judge as non-marital assets and, as such, not to be divided equally between the couple. The assets had been held in the wife’s sole name. She had not worked for many years in order to look after the couple’s two children, who are now adults. The husband had continued to work and had acquired various assets. His wife had received £70,000 from her father and a further £12,000 from an inheritance. She had used this money to reduce the mortgage on the couple’s property. She also owned a 50 per cent share in her parents’ home and had been given an investment bond worth in excess of £114,000. Her ex-husband believed that she would inherit the bulk of her parents’ estate, said to be worth more than £1m. At the end of their marriage, the husband was retired. He was earning about £5,000 per annum and also had a pension. His wife was working at a school, which gave her free board as well as a wage of £1,000 per month. The judge ruled that the couple’s assets, which now included two houses, should be divided equally, except for the bond and the share in her parents’ home, both of which were reserved for the wife. The husband argued on appeal that this was unfair. He claimed he had introduced assets at the start of the marriage and had made the major contribution to the creation of the assets of the marriage. He also claimed that the judge had failed to take proper account of his wife’s expectations with regard to her parents’ fortune. The Court of Appeal accepted these arguments in part. On the question of the expected inheritance, the Court could not agree that the husband had suffered any loss that needed to be compensated for, especially as his ex-wife’s parents were free to direct their estates in whatever way they thought best. However, the Court agreed that ring-fencing the wife’s other assets was unjustified. Partner Note For further information please contact Julia Korona House Owner Pays Price for Contract Failure Failure to make contractual terms clear is a sure recipe for trouble and in construction contracts, where the sums of money involved can be substantial, getting the contract terms agreed up front is always sensible. In a recent case, a woman arranged with a property developer that the developer should carry out refurbishment work on her property. The development of the property was to proceed in three stages and it was agreed that the developer would start the first phase as soon as the necessary planning permission and building control permission were obtained. The woman made up-front payments to cover professional fees and to fund the commencement of the works. Unsatisfied with the subsequent progress, she demanded an account of how the money had been spent and decided that now was the time to have a formal contract. She refused to make further payments until a schedule of payments based on progress achieved was agreed. The developer refused to continue without further progress payments. He sent a solicitor’s letter to the woman demanding payment of the sums due. Each side accused the other of repudiating the original contract and eventually the dispute ended up in court. The court had to decide the following issues:
The court concluded that the woman had entered into two separate contracts with the developer. The first was with regard to the first phase of the works. She had repudiated this contract when she regarded the developer’s breach of the contract as a repudiation of it. Her response had not been the correct one. She had herself created a repudiatory breach of contract by failing to pay the second instalments due under the contracts. The developer was therefore entitled to damages for the profits he would have made had the contracts been completed and paid for as agreed. This case shows how what may seem to be a reasonable reaction – in this case declining to make payments when a development falls behind schedule – can lead to difficulties. In this case, the problem was compounded by the woman’s response to the solicitor’s letter sent on behalf of the developer. Had the original contract contained a clause which linked payments to the meeting of specific targets, then each side would have known where it stood and the dispute could probably have been avoided. The time to get a contract right is at the beginning. We can help you negotiate a building contract that ensures your interests are protected. Contact Kate Barnes for advice. Partner Note The long-term lover of a man who had promised to marry her but died before they could wed has received more than £1m from his £3m estate. Multimillionaire Henry Bahouse and former dental nurse Cyd Negus had a ‘flamboyant lifestyle’ before he committed suicide in 2005. His will made no provision for 50-year-old Ms Negus, who therefore claimed for financial provision to be made for her from his estate. Mr Bahouse’s family contested the claim, arguing that Ms Negus had already received the proceeds of a life assurance policy, taken out by Mr Bahouse for her benefit, and a half share in a Spanish property. Together, these were worth in excess of £600,000. According to Ms Negus, she and Mr Bahouse were intending to get married and even hoped to start a family. According to Mr Bahouse’s family, the couple were on the verge of breaking up and Mr Bahouse had no intention of marrying Ms Negus. In the view of Deputy High Court Judge Roger Kaye QC, Ms Negus had become a housewife ‘in all but name’ and had a reasonable basis for believing that her future financial needs would be met by Mr Bahouse. There had been no diminution in the couple’s love for one another. He awarded Ms Negus the ownership of the flat she had shared with Mr Bahouse (valued at approximately £400,000) and a lump sum of £240,000. The balance of the estate, worth about £2m, went to Mr Bahouse’s family – mainly to his son Gordon. The court action cost the Bahouse family approximately £100,000 in legal costs. Says Kate Barnes, “If a person has been supported financially by another, under some circumstances a claim can be made on the estate after the death of the person providing the financial support. In such cases, the court, not the will of the deceased, determines how the estate is to be divided. If you have been financially reliant on another person who has died and have not been made a beneficiary under their will, you may be entitled to make a claim on the estate. Contact us for advice.” Partner Note The rules governing Home Information Packs (HIPs) require that estate agents in England and Wales who market homes for sale with HIPs must belong to an approved redress scheme for HIP-related complaints. The schemes allow consumers to pursue compensation claims against agents where a complaint is justified. The administrators of approved redress schemes are required to pass information regarding misconduct of estate agents to Trading Standards Officers and to the Office of Fair Trading (OFT). The OFT has the right to ban persons it deems to be unfit from acting as estate agents. Two schemes already in operation have now been joined by another, known as the Property Adjudication for Consumers Scheme (PACS), which commenced on 1 December 2007. PACS differs from the existing schemes as it is run by an independent dispute resolution provider rather than an ‘industry ombudsman’. This may give an extra level of comfort to some complainants. Properties on the Market Prior to HIPs Currently, any property that was already on the market on the date that HIPs were introduced does not require a HIP. At some stage, a date will be set when all qualifying properties on the market will need a HIP, regardless of when they were first marketed. However, the Government has yet to decide when this will be. Partner Note For further information please contact Lorraine Moser. Reduced Earning Capacity in Marriage Warrants Compensation A recent case, in which a man’s ex-wife sought an increase in the financial provision originally made for her following their 1988 divorce, has raised an interesting issue regarding the calculation of the division of the financial spoils on the break-up of a marriage. Although there were a number of issues raised, there were two points of primary interest. The first was that in the original settlement, even though the couple had been married for 24 years, the woman was awarded only 26 per cent of the capital of the marriage. She was, however, awarded 35 per cent of her husband’s income at that time. Subsequent to their divorce, the woman’s ex-husband was able to increase greatly the value of his assets, becoming a multimillionaire. She had found a job after their divorce, but her argument that she should have an increase in her financial settlement was based not only on her increased financial need (by the time the case was brought, her only income was a pension of approximately £15,000 per year), but on the basis that she should be compensated for her reduced earning capacity during the marriage because she had not worked whilst bringing up their children. The court accepted this line of reasoning and awarded her a six-figure settlement. Partner Note For further information please contact Julia Korona If you are subject to a long delay or the cancellation of your flight when on holiday, the airline is required to give you a leaflet outlining your right to compensation. If the delay or cancellation means that you must rearrange your holiday or incur significant extra cost, make sure you get an exact explanation of the reasons for it. We can give you advice on your rights in these circumstances if the airline or tour operator fails to compensate you adequately. If you are on a package tour and suffer illness as a result of poor hygiene or some other preventable cause or you have an accident on account of a lack of proper safety considerations, make sure you get as much evidence as possible and as quickly as possible. Photographs or films of unsafe areas and unhygienic food preparation procedures can be very useful in cases of accident or illness, for example. Also, make sure your complaints are formally noted in writing and given to the holiday representative and/or the resort manager and make sure you keep a copy. Exchange addresses with any potential witnesses or fellow sufferers. If you are admitted to hospital, retain a copy of your medical notes. If through no fault of your own you have suffered a preventable accident whilst on holiday or had a holiday ruined by illness caused by procedural failings at your resort, contact us as soon as possible for advice on the next step to take. The website of the Air Transport Users Council contains useful information on passenger rights in the event of delays etc. by airlines. This can be found at http://www.caa.co.uk/default.aspx?catid=306&pagetype=90&pageid=6547. For further information please contact Kate Barnes. Squatter Must Prove Exclusive Occupation When an application is made to register land by adverse possession (the legal term for ‘squatters’ rights’), the onus is on the person claiming possession of the land to prove their right to claim the title to it. A recent case dealt with a situation in which agricultural land was claimed by a man who asserted that he had been in exclusive occupation of it since 1991 and had built fencing and a locked gate so that he could graze sheep and horses on it. He alleged that he had occupied the land to the exclusion of the owners of the legal title to it since that time. He claimed that he had therefore met the requirement to have had sole and exclusive occupation of the land for twelve years and was thus legally entitled to have the land registered in his name. The court upheld his claim. However, the owners of the ‘paper title’ appealed. On appeal, the court judged that the man had failed to prove that he was in sole and exclusive occupation of the disputed land before 1995. His claim therefore failed. Says Kate Barnes, “Such cases will always be decided on the facts, so it is important to obtain and retain as much evidence as possible when bringing or disputing a claim or if such a claim is a possibility in the future.” This case arose prior to the introduction of the Land Registration Act 2002, which made changes to the law. A system of notices was put in place which informs anyone with an interest in the land that an application has been made by someone to register title to it in their name(s). This allows the owner to prevent the application. However, if the squatter has occupied the land for the requisite period and is allowed to remain in possession unopposed for a further two years after the application is made (i.e. the owner fails to take steps to evict them), then a second application to register the land in the squatter’s name will be successful. The system now in place should, in time, make such claims less frequent, especially as regards registered land. It is a worthwhile precaution to ensure that land is registered if there is a possibility that it might be occupied by squatters and title to it could be claimed by adverse possession as it makes the chances of failing to receive the relevant notices less likely. Partner Note In Brief - Bankrupt Ex-Spouses – Court of Appeal Rules The Court of Appeal has reversed the decision of a lower court and decided that the financial settlement between a man and his ex-wife could not be used to pay the ex-husband’s debts when he became bankrupt two years after their divorce. The claim by the man’s receiver in bankruptcy that the arrangements under which the wife retained the family home constituted a ‘transfer at an undervalue’ was not accepted by the Court. The decision will be welcomed by those who are divorced and whose ex-spouses have become insolvent. Had the receiver’s argument carried the day, the ex-spouse of a bankrupt would not have known for certain that assets derived from the financial settlement would be safe from a future claim. However, the relief may be short lived. An appeal to the House of Lords is said to be likely. Partner Note For further information please contact Kate Barnes IHT and the Pre-Budget Report – Traps Still Remain It is likely that the changes in Inheritance Tax (IHT) announced in the October pre-budget report were motivated more by Chancellor Alistair Darling’s desire to steal the Tories’ thunder than a recognition of the true problem, namely that rising house prices have plunged many people of modest means into a tax regime originally designed to affect only the rich. Be that as it may, the changes – hailed widely as a ‘doubling of the IHT nil rate band’ – were seized upon with great enthusiasm. On closer inspection, however, there seems less to cheer about than was first thought. Firstly, the IHT nil rate band will not be doubled, except in cases in which two spouses or civil partners die in the same tax year. In other cases, the amount available on the second death will be the amount of the IHT nil rate band in the tax year in which the second death occurs plus an amount calculated on the proportion of the IHT nil rate band which was not used up on the first death. An example will illustrate how this works. Suppose a man died in September 1991, leaving an estate of £100,000. The IHT nil rate band for that tax year (1991/1992) was £150,000. Two-thirds of the 1991/1992 nil rate band was therefore used up on the first death. If the man’s widow were to die in the current (2007/2008) tax year, IHT would be payable on her estate above £400,000…the current nil rate band of £300,000 plus an additional one-third based on the ‘unused proportion’ remaining from the first death. The first problem arising here is that unless past records have been retained, it might be difficult to know what the value of the earlier estate was and hence the value of the unused nil rate band. This would be especially so if the value of the estate was low enough to make the filing of a return unnecessary. Also, where the IHT nil rate band was largely used up on the first death (and the nil rate band amounts were much lower in the middling past) the ‘extra’ relief could be rather small. In any circumstances, the maximum nil band available on the second death is twice the single nil rate band. Secondly, the new limits will apply only to spouses and civil partners. Cohabiting couples (presumably because a review of the law relating to them is ongoing) obtain no benefit from these proposals and no nil rate band is transferred between them. Indeed, they will not even inherit each other’s estates unless they have wills. Thirdly, the emphasis on IHT deludes many people into thinking that if they know they will not have an IHT liability, they will be able to pass their entire estate into the hands of their family, untrammelled by the state. Regrettably, for hundreds of thousands of families, this is merely false optimism. The spectre that faces many families is the rising cost of care for the elderly, which can destroy the wealth of a family of modest means. The reason for this is that currently (2007/2008) a person with assets exceeding £21,500 normally pays the whole of the cost of any long-term residential care they receive, which can amount to over £1,000 a week. David Cocksedge and Alison Damant say, “Our concern is that people will seize on the IHT changes as a reason for neither making a will nor undertaking planning to preserve family wealth and will unnecessarily end up transferring assets to the state, rather than their family.” The recent Inheritance Tax (IHT) change which allows the transfer of ‘unused’ nil rate bands from spouse to spouse or from civil partner to civil partner has been generally welcomed, but it has caused some consternation as determining the ‘old’ nil rate band that applied on the first death can be tricky. It is widely thought that the balance of the allowance available is based on the current allowance but, in reality, it is based on the proportion of the allowance that was unused in the tax year during which the first death occurred. Therefore, to work out the available amount of nil rate band which can be offset on the second death, it is necessary to know both the value of the estate transferred on the first death and the amount of the nil rate band for that year. The available allowance on the second death is the deceased’s own allowance plus the unused percentage of that of the first spouse times the allowance in the year of the second death. In an attempt to make the calculations easier, HM Revenue and Customs (HMRC) have published nil rate band tables for IHT and for its predecessor taxes (Estate Duty and Capital Transfer Tax), for all years from August 1914 to date. HMRC have also published on their website further guidance, in the form of frequently asked questions, about the transfer of the nil rate band: see the ‘What’s New’ pages of HMRC’s website at http://www.hmrc.gov.uk/cto/iht/whatsnew.htm. For further information please contact David Cocksedge and Alison Damant Farmer Who Worked For Free Gains Share of Will A farmer who helped a relative run his farm for more than 20 years has been awarded the property he helped to run. David Thorner was the son of Peter Thorner’s cousin. He helped Peter to run his 400 acre farm in Somerset when Peter began to suffer from ill health. What started as a temporary measure became a lifetime of commitment, as David spent the next 25 years working on the farm without taking a holiday and sometimes working up to 18 hours a day. He was never paid for his work, only receiving a modest allowance from his parents. The two men had an understanding that on Peter’s death, David would inherit the farm. However, Peter destroyed the will he had made in 1997, which left the farm and most of his estate to David, and never made another. This appears to have occurred because Peter had a falling-out with one of the other beneficiaries under the will. On Peter’s death in 2005, no will could be found, so the laws of intestacy applied. In such cases, the estate passes to the nearest relatives, who in this case were Peter’s nieces. David relied on the principle of estoppel – in essence that it would be unfair to divide the estate according to the intestacy laws. He argued that the result of Peter’s not having made a new will led to the unfair result that David would not inherit the farm as per their agreement. The claim was defended on the basis that there was no promise as such that David should inherit the farm and thus if he had any claim to having provision made for him out of the estate, it would be a much lesser amount. The court heard a great deal of evidence that Peter had an ‘indirect’ way of saying things – for example, saying, “What are you doing tomorrow?”, when what he meant was “Can you help me tomorrow?” This was claimed to account for the lack of direct evidence for Peter’s promise. David applied to the court for provision out of the estate and was successful in his claim. The Court awarded the ‘non-agricultural’ assets of approximately £1m to the nieces and the farm to David. David Cocksedge and Alison Damant say, “Peter’s failure to leave a valid will meant that the family faced two years of legal wrangling to divide up his estate. All of that expenditure was avoidable. If you have a relative who has assets and is intestate, they may not realise the benefits of making or the consequences of not making a will. The laws of intestacy are often not fair and in this case, had David not made a challenge, the whole of the estate would have passed to family members who had very little to do with the deceased.” Partner Note If trustees act in a way that gives rise to an unintended liability to tax, the situation can be put right by going to court to have the trust deed rectified. Traditionally, all the trustee had to do was to persuade the court that the unexpected tax liability was something which was important and which he had not considered. The court would then order the transaction to be set aside. There is some evidence that the courts are taking a somewhat tougher stance nowadays when faced with claims for rectification of trust deeds, as a recent case shows. In it, the settlor of a trust created a discretionary trust for the benefit of his children. He did not realise that such a transfer is an immediately chargeable transfer for Inheritance Tax (IHT) purposes, thinking that it was a potentially exempt transfer. An application was made to have the trust deed rectified. The judge refused, stating that there was no misapprehension about the effect of the trust deed, only its fiscal consequences. The deed as created reflected the settlor’s true intentions. The claim made by the trustees was to create a completely different settlement, not to rectify a mistake in the original settlement. The Court of Appeal agreed – the settlor had wished to save IHT without giving gifts directly to his children. The trustees could not show the mistake in the deed that required rectification. They could only offer an alternative. More recently, rectification has been refused in another case in which the only effect of the rectification requested would be that a fiscal advantage would be obtained. In that case the rights of the grantor of the trust and the intended beneficiary would have been completely unaffected by the proposed rectification. David Cocksedge and Alison Damant say, “It is far better to take good professional advice and get it right the first time than to go to court to rectify a defective trust document. With proper planning, such action should not be necessary. Otherwise, not only will there be an avoidable cost, but also the courts appear to be becoming increasingly unwilling to cooperate in such circumstances.” Partner Note **** The information contained in this newsletter is intended for general guidance only. It provides useful information in a concise form and is not a substitute for obtaining professional advice. We respect your time online and your privacy. If you would not like to receive any further newsletters then please send an email to opt-out.newsletter@bwblegal.com with 'unsubscribe |
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