Can You Disinherit Your Spouse: Understanding the Elective Share Rights of Surviving Spouse (Part 1 of a 2 Part Series)

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Planning & Estate Administration Attorney

If you’re married and you create a Last Will or Trust that either cuts out your spouse or fails to leave him or her much money, is there a way that he or she can to challenge or elect against the Will? The answer is yes…the omitted spouse can challenge the will and collect about one third of his/her spouse’s estate under New Jersey law.

New Jersey statutes and supporting case law set forth what are called the Elective share rights of a surviving spouse (N.J.S.A. 3B: 8-1). The law provides that if a married person dies domiciled in this State, the surviving spouse has a right of election to claim what is known as “an elective share” of one-third of the augmented estate, provided that at the time of death the decedent and the surviving spouse had not been living separate and apart in different habitations and/or had not ceased to cohabit as man and wife, either as the result of a judgment of divorce or under circumstances which would have given rise to a cause of action for divorce or nullity of marriage prior to his death. This means a surviving spouse can claim about one-third (1/3) of their dead spouse’s estate as his or hers regardless of what their will says, or doesn’t say.

Clients always ask me the meaning of the term “augmented estate”. The augmented estate means the value of your estate reduced by funeral and administration expenses, debt and claims. To this figure is added the value of property transferred by the decedent at any time during marriage, to or for the benefit of any person other than the surviving spouse, to the extent that the decedent did not receive adequate and full consideration in money or money’s worth for the transfer. I know what you’re thinking. What the heck did Fred just say? Well before I translate this for you let’s read the actual elective share statute and the law together:

  1. Any transfer made (after May 28, 1980) under which the decedent retained at the time of his death the possession or enjoyment of, or right to income from, the property;
  2. Any transfer made (after May 28, 1980) to the extent that the decedent retained at the time of his death a power, either alone or in conjuction with any other person, to revoke or to consume, invade or dispose of the principal for his own benefit;
  3. Any transfer made (after May 28, 1980) whereby property is held at the time of the decedents death by decedent and another with right of survivorship;
  4. Any transfer made (after May 28, 1980) if made within 2 years of death of the decedent, to the extent that the aggregate transfers to any one done in either of the years exceed $3,000.00

So, the follow up question you might be asking yourself is; how is the value of the elective share calculated? Well that question is addressed in N.J.S. 3B:8-3. The value of all property given away during the lifetime of a decedent is valued as of the date someone else came into possession of the property.

DATE OF VALUATION OF THE ELECTIVE SHARE

The court’s duty under N.J.S.A. 3B:8-15 is to “determine the amount of the elective share”. This means that, if an agreement cannot be made by the surviving spouse and the estate, the court has to fix the value of the augmented estate and the value of the elective share so that appropriate payment or distribution can be ordered. Value does not automatically mean the day-of-death valuation, but generally that is the valuation standard.

The court’s further duty under N.J.S.A. 3B:8-15*406 is to enter an order directing the “payment” or distribution of the elective share from the augmented estate if the estate property is not in the hands of the executor.

It has generally been held that the electing spouse gains and losses in asset values occurring between death and distribution to him or her. The rule is sound and equitable.  The Legislature never mandated valuation as of the date of death. But, note that the statute requires non-probate transfers to be included in the augmented estate as of the date-of-death or pre-death value. The rule that the electing spouse shares in pre-distribution gains and losses of non-probate assets is not a simple one. In the usual setting of the probate estate, fractional shares of the estate are not difficult to deal with. The concept of the augmented estate, however, creates a unique set of problems. Included in the augmented state are assets already in the hands of the spouse or other beneficiaries. They may be by pre-death gift, transfer taking effect on death, or other equivalent means described in the statute.

One final point deserves mention. Under N.J.S.A. 3B8-15, the court will have to value a spouse’s independent property in order to decide what, if any, effect it will have on the size of the elective share. One follow up question asked is the date of that valuation. Like other assets already in the hands of recipients on the date of death, the spouse’s independent wealth should be valued as of the date of death. Later fluctuations in its value will be removed from consideration and the spouse can better decide whether to elect within the limited time given him or her to do so.

It is also significant that the surviving spouse is entitled to one third of the augmented estate only to the extent that its value exceeds the value of her independent property. New Jersey’s statute is unique in that regard. It works this way: once the amount of the elective share has been fixed, the court is obligated by N.J.S.A. 3B8-15 to order the manner of its payment. N.J.S.A. 3B8-18(a) says that the elective share shall be satisfied first by applying.

The value of all property…owned by the surviving spouse in his or her own right at the time of the decedent’s death from whatever source acquired or succeeded to by the surviving spouse as a result of decedent’s death notwithstanding that the property…succeeded to by the surviving spouse as a result of the decedent’s death has been renounced by the surviving spouse.

The quoted language says two key things. The first is that the value of the survivor’s own independently acquired property must be deducted from his or her calculated elective share. If it is greater than her share she gets nothing more. If it is less, she gets the difference.

The second key statement in N.J.S.A. 3B8-18(a) is that the value of property coming to the survivor by reason of the decedent’s death is deducted from her calculated share. That means, among other things, that, if the decedent leaves anything to his spouse is his will or by non-testamentary transfer taking effect on death, its value is deducted from her elective share. As a result, even though she has elected against the will, she must first take the inheritance her spouse has chosen to give her by will or otherwise. Since she will be charged with the value of those assets, the court’s N.J.S.A. 3B8-15 order should direct their transfer to her as part of her share before touching other estate assets or persons liable for contribution. [3]

There are several exceptions to the elective share law (of course) that can prevent a spouse from making a claim against their deceased spouse. Under N.J.S.A. 3B:8-5 property shall be excluded from the augmented estate under N.J.S. 3B8:-3, if made with the written consent or joinder of the surviving spouse. There shall also be excluded from the augmented estate any life insurance, accident insurance, joint annuity or pension payable to a person other than the surviving spouse.

On my next post I’ll address the elective share law further and wrap things up for you.

To discuss your NJ Estate Planning or Estate Administration matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.