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.