Attorneys who practice in the field of Matrimonial/Family Law often hear
that certainty and finality are elusive, if not impossible, goals. Although
the parties may eventually enter into a Stipulation of Settlement or Separation
Agreement, issues arise in the future often requiring further court intervention.
In fact, in certain instances not even death ends the animosity nor the
litigation between parties. It is therefore important for attorneys who
practice in this field to eliminate as many future issues as possible
when drafting a settlement agreement.
One problematic area is the future responsibilities of a spouse to provide
for his or her former spouse and family. This article hopefully will provide
insight into this area, addressing the priority of rights between the
contractual obligation in the stipulation of settlement compared to the
rights of a future surviving spouse. Additionally, it intends to address
drafting a document which is clear and will not require future court intervention.
Definition of the elective share
A surviving spouse has a right of election under Estates Powers and Trusts
Law (EPTL) 5-1.1-1A. The right, however, is subject and subordinate to
any claim of a former spouse as a creditor of the decedent. In addition,
the right of election extends only to a share of the
net estate. Therefore, the right is subject to the balance of assets remaining after
deducting the amount required to satisfy the indebtedness that may be
due a former spouse under a Separation Agreement. To protect the former
spouse there must be clear language indicating that the former spouse
is a creditor of the testator (the now deceased former spouse), thereby
limiting the right of his/her surviving spouse.
The key issue is whether the former spouse is considered a contract creditor
or a contract legatee. The analysis will turn on whether the separation
agreement created a certain debt for the decedent to meet at the time
of the parties divorce, or involved an obligation to make a will/trust
in the future.
A contract creditor has a superior claim to the surviving spouse’s
elective share. A contract legatee, however, does not.
An example of the distinction can be seen in the following case:
A Separation Agreement provided that a husband would pay his wife $200,000
per year, which would terminate upon the death of either party. In addition,
the husband would create a trust in his will of at least $1.5 million,
with income to the wife and on her death or remarriage principal to their
children in equal shares.
The husband remarried and executed a will containing the appropriate provisions.
He had paid the $200,000 per year during his life. The problem, however,
arose at the time of his death, where his net estate amounted to only
$490,000. His surviving spouse filed an election against the will.
The first wife’s family and children filed a creditor’s claim
based upon the Separation Agreement, which they claimed had priority over
the surviving spouse’s right of election. The surviving spouse alleged
that her elective share had priority over that claim.
The court found that the prior spouse and children of that marriage
did not become creditor’s of the estate pursuant to the provisions of the
Separation Agreement. It concluded that their rights were not superior
to those of the surviving spouse. The court indicated that the agreement
was not a contract to convey property, rather it was a promise to make
a testamentary disposition. Therefore, the breach of the obligation to
make a testamentary position would not render the first wife a true creditor.
The courts have drawn that distinction consistently. Consequently, it is
imperative that attorneys and litigants be advised of this potential conflict
when drafting the Stipulation of Settlement and pay special attention
to these issues whenever a prior spouse’s rights are in question.