Ms Wilton had a contracting out agreement with her partner Mr Rimmer. On his death, she kept what she was entitled to under the contracting out agreement (which included a life interest in his portion of their relationship home) and elected Option B. As Mr Rimmer did not have a will, she applied to be appointed as his administrator and took her entitlements as his de facto partner under the rules of intestacy. As administrator, she did not make any distributions to Mr Rimmer’s children.
Mr Rimmer’s children made a claim against Ms Wilton (as administrator), believing they should have been provided for from Mr Rimmer’s estate, and objecting to what they considered was Ms Wilton’s “double dipping” by taking under both the contracting out agreement and the intestacy.
In the Supreme Court, Mr Rimmer’s children argued that the terms of the contracting out agreement defined Ms Wilton’s only entitlements to Mr Rimmer’s estate, and that she had no further entitlements under the intestacy provisions (i.e. she could not inherit under the contracting out agreement and further inherit by electing Option B under the PRA).
In response, Ms Wilton argued that when there is a contracting out agreement, it is usual for the surviving spouse or de facto partner to pick Option B and receive their share of the property under both the contracting out agreement and under the will or intestacy - this is what the High Court and Court of the Appeal had found.
However, the Supreme Court agreed with Mr Rimmer’s children, overturning the Court of Appeal decision.
The Supreme Court focused on the actual terms of the contracting out agreement. The terms of this particular contracting out agreement included (at clause 5.1) that the agreement was in “full and final settlement of all claims which each of them may have against the other under any statute whatsoever or at common law or at equity”. The Supreme Court found that inheriting under an intestacy constituted making a claim under the Administration Act and that this was prohibited under clause 5.1 of the agreement. Ms Wilton was entitled to her property under the contracting out agreement, but nothing more.
It also found that the contracting out agreement did not expressly prevent either party from voluntarily giving further property to the other in their will. This meant that, had Mr Rimmer left a will, Ms Wilton would have been entitled to inherit the property he left to her in the will.
What does this mean in terms of the election of Option A or Option B? The Supreme Court stated that, where a contracting out agreement exists, the decision as to whether to take Option A or Option B “is less practically significant, and may become irrelevant”. This is because the wording of the contracting out agreement will govern whether the party has contracted out of receiving the property that they would otherwise receive under one or both of the options in s61. Whether taking under your partner’s will or under an intestacy under Option B is available to you will depend on the wording of the contracting out agreement.
The Supreme Court also confirmed that there is nothing in the PRA suggesting that a contracting out agreement was only binding if option A was chosen.
What this means in practical terms is that it is very important to ensure that your contracting out agreement clearly sets out the intention upon the death of one of the parties. If your contracting out agreement says that you each give up your right to make any other claims, this is likely to be interpreted as meaning you have given up any right to receive under an intestacy. If this is not your intention, then your agreement should be updated to reflect this.
If you are worried about whether your contracting out agreement is fit for purpose in light of the Supreme Court decision, please contact us for advice.
