In the recent case of Strauss v. Strauss , an interesting issue arose regarding whether monies received by Brian Strauss as part of a will contest were to be considered marital property subject to equitable distribution in the parties' divorce action or Brian Strauss' separate estate not subject to equitable distribution.
According to a 2011 Superior Court opinion, the parties married in 2000 and no children were born of the marriage. Both parties are approximately the same age, have an equal educational background and are employed. The difference in their earnings is not significant, with husband Brian Strauss earning approximately $75,000 gross per year and wife Yildiz Strauss earning about $54,000 gross per year.
Brian Strauss' father died testate in 2005, six days after he executed a will that voided an earlier will that he executed in 1991. Both Brian Strauss and his brother were residuary beneficiaries under the terms of both wills. However, the latter will (the 2005 will) left specific bequests to several charities, which substantially reduced Brian Strauss and his brother's share in their father's estate. Under the will, Brian Strauss received $229,644 as his share of the residuary estate. Two years later, in 2007, the parties separated and the husband brought a divorce action, according to the opinion.
Prior to the parties separating and Brian Strauss filing the divorce action, he and his brother filed an action in New Jersey (where their father passed away) contesting the 2005 will "on the grounds decedent did not have the ability to form the requisite intent to execute the will due to his weakened mental and physical condition," according to the opinion. Brian Strauss and his brother sought to have the 2005 will declared invalid, reinstate the 1991 will, and direct that the 1991 will be submitted for probate. Brian Strauss and his brother settled the action contesting the 2005 will and each received $150,000 ($130,000 after payment of counsel fees) as part of the settlement.
According to the opinion, the parties' equitable distribution matter was forwarded to the master's unit to be resolved. After an equitable distribution hearing, the master filed a report and determined that the $130,000 proceeds received by the husband from the settlement of the will contest "were non-marital property." Being that the will contest proceeds were not considered marital property, same would not be available to be distributed between the parties as part of equitable distribution. However, it is to be noted that the $130,000 would be considered Brian Strauss' separate estate when weighing the equitable distribution factors in reaching the overall resolution of the equitable distribution matter.
Yildiz Strauss appealed de novo to the trial court after the master determined that the will contest proceeds were nonmarital property. According to the opinion, following a hearing by the trial court, where the parties waived testimony and submitted a stipulation of facts, the court issued a decree and order granting the divorce and finding the husband's share of the will contest settlement proceeds marital property, and granted Yildiz Strauss one-half of the value of the will contest proceeds.
Thereafter, Brian Strauss properly filed an appeal of the trial court's decision. He raised two issues on appeal. His first issue on appeal was whether "the trial court erred when it held the $130,000 will contest settlement was marital property subject to equitable distribution between the parties." His second issue on appeal was whether the trial court erred in failing to find that he was entitled to a credit for alimony pendente lite payments made to Yildiz Strauss during a period of time prior to the hearing. However, Brian Strauss' first issue on appeal will be the focus of this article.
The issue on appeal pertaining to the will contest proceeds was an issue of first impression, according to the Superior Court opinion. The trial court's reason for finding that the will contest proceeds were marital property was that "the cause of action accrued at father's death and the claim involved a lawsuit," both of which occurred prior to the parties separating. The Superior Court disagreed with the trial court's reasoning.
Pursuant to the Pennsylvania divorce code, a payment received as a result of an award or settlement from a cause of action or claim that accrued prior to the parties' marriage or after the parties' separation is not marital property subject to distribution. Debate has arisen over the years as to whether an award or settlement that is received after the parties' separate but the right to same accrued during marriage constitutes marital property subject to division in the equitable distribution of the parties' estate.
One side of the argument claims that the divorce code is clear on the issue and that the focus is on when the right accrued. However, on the other side of the argument, subsequent case law has held that the determining date is when a settlement or decision from a cause of action is reached. Regardless, pursuant to the Pennsylvania divorce code, excluded from marital property subject to division in equitable distribution is property acquired by devise or dissent.
The gray area in the Strauss matter is whether the fact that the will contest proceeds were obtained through litigation recharacterizes the funds as settlement proceeds that would be subject to distribution if it accrued during the marriage. The trial court held that the death of Brian Strauss' father during the marriage equated to his right to the proceeds of the will contest accruing during marriage.
In the Strauss opinion, the Superior Court quoted the Pennsylvania Supreme Court as long holding: "'A residuary clause is one the language of which, when read in connection with the will as a whole, fairly manifests an intention to make disposition of everything which testator has not otherwise disposed of by the will of which it forms a part.'"
The Superior Court stated: "All monies paid to husband came from the residuary of the estate." The opinion further explains that the parties acknowledged that the $130,000 the husband received was paid by the charities that had received specific bequests under the 2005 will by depositing the funds back into the estate and the estate thereafter distributed the funds to Brian Strauss. Because the funds paid to Brian Strauss came from the residuary estate "and could only be distributed under the terms of the will," and "were distributed through the estate, Mr. Strauss' receipt, as decedent's beneficiary, is an inheritance and therefore nonmarital." As such, because the will proceeds were viewed as an inheritance as opposed to proceeds from litigation, the Superior Court reversed the trial court's decision in finding that the will contest proceeds were marital property subject to distribution.
Lastly, the opinion addressed Brian Strauss' second issue on appeal, where he argued that the trial court erred in finding that he was not entitled to a credit for alimony pendente lite payments made to Yildiz Strauss between October 2009 and June 2010. After considering the parties' respective separate estates and incomes and the fact that Brian Strauss previously agreed to pay alimony pendente lite, the Superior Court affirmed the trial court's decision of not crediting Brian Strauss for the payments and found that the trial court did not abuse its discretion.
This case is an important case for family law practitioners. As seen by the facts in this case, there is a gray area regarding an inheritance that is obtained, in part, through litigation. The Strauss case provides clarity regarding this issue.
MICHAEL E. BERTIN is a partner at the Philadelphia law firm of Obermayer Rebmann Maxwell & Hippel. Bertin is co-chairman of the custody committee and treasurer of the family law section of the Philadelphia Bar Association, and a past member of council and the executive committee of the family law section of the Pennsylvania Bar Association. This article is reprinted with permission from the October 11, 2011, issue of The Legal Intelligencer. © 2011 Incisive Media US Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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