Wisconsin's New Deferred Marital Property Election

The new deferred marital property election protects a surviving spouse from disinheritance in the deceased spouse's unclassified property - property that was acquired when the Wisconsin Marital Property Act (WMPA) did not apply to the marriage but which would have been classified as marital property if the WMPA had applied.

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By Howard S. Erlanger

² Community property systems also recognize that some property - that is, separate or individual property - is not a product of the marriage because it was brought to the marriage or - the income or "fruits" of separate property are generally shared.⁵)

A major wrinkle in community or marital property systems is the treatment of property acquired by spouses during a period when they were not subject to community property rules. In Wisconsin, property of spouses acquired when the Wisconsin Marital Property Act (WMPA) did not apply to the marriage - that is, before the Act's effective date or while at least one spouse was domiciled outside of the state⁶ - is unclassified. Some of this property would have been marital property if the WMPA had applied when the property was acquired; some of it would have been individual property. If this property was acquired under a common law property system, such as existed in Wisconsin before the effective date of WMPA, then all interest in the property was vested in the acquiring spouse, regardless of whether the property would have been marital property under Chapter 766 of the Wisconsin Statutes.

In part to avoid questions of unconstitutional "takings," under WMPA neither adoption of the Act nor spouses' change of domicile from a common law property state to Wisconsin causes property to be classified under the marital property system. Instead, all unclassified property is treated as individual property during the marriage.⁷

As a result, the surviving spouse does not have a vested interest in unclassified property at the death of the spouse who acquired the property. This is acceptable for property that would have been the decedent's individual property. But for property that would have been marital property, the result is to deny the surviving spouse the ownership benefits of the property, while also failing to provide him or her the protection of the spousal election available in common law property regimes. Therefore, unclassified property that would have been marital property - termed deferred marital property in Wisconsin - requires a special rule to prevent disinheritance of the surviving spouse.

One way to determine whether property is deferred marital property is to use what might be called the "language gambit": One simply tells the story of the property's acquisition, in relation to the Marital Property Act.

Example: Facts: A and B were married as Indiana domiciliaries in 1992 and established a Wisconsin domicile in 1996. In 1993, A purchased a spittoon using funds that cannot be traced. The spittoon is unclassified property because it was acquired before the Act applied to A and B's marriage. But had the Act applied, the spittoon would have been marital property under the presumption that all property is marital property.⁸ Thus, the spittoon is deferred marital property.

The analysis would be identical for a Wisconsin couple married before Jan. 1, 1986, who became subject to the Marital Property Act on that date and had previously acquired property.

The Wisconsin deferred marital property elections under prior law

Under the law in effect through 1998, deferred marital property was subject to two elections, which derived partly from Wisconsin's old common law "elective share" and partly from the UPC's augmented estate election provisions that applied when the Wisconsin provisions were enacted.⁹One of these elections - which was subject to a bar - related to probate property; the other - which was subject to a "cutback" - related to nonprobate property. These elections were difficult to administer and included several idiosyncratic elements that could lead to inequitable results. The new probate code replaces these elections with a single election that is less complex and more consistent with the partnership theory of marriage.

Wisconsin's new deferred marital property election

The new election, which became effective on Jan. 1, 1999, is modeled on the elective share provisions for common law property states under the 1990 UPC.¹⁰The major changes from Wisconsin's prior deferred marital property elections are these:

• The election is based on the total amount of all deferred marital property in the marriage, not just that owned by the decedent. The surviving spouse is entitled to half that total, rather than half the deferred marital property owned by the decedent.
  
  
• There no longer are separate elections for probate and nonprobate deferred marital property.
  
  
• The new statute eliminates the "all or nothing" bar in the prior election regarding probate deferred marital property. The resulting system is somewhat similar to the "cut back" in the prior election regarding nonprobate deferred marital property. The cut back includes any deferred marital property already held by the surviving spouse.
  
  
• The election is for a pecuniary amount, rather than for an item-by-item interest, in contrast to the prior probate election.
  
  
• All nonprobate deferred marital property is subject to the election, in contrast to the prior election, which limited covered nonprobate property to transfers made on or after April 4, 1984.

The new election only applies to deferred marital property. Under the new Code, as under previous law, the surviving spouse has no right of election against the decedent spouse's marital property, individual property, or deferred individual property.

The basics of the election.¹¹ 1) Who is covered? The deferred marital property election is available to the surviving spouse¹²of a decedent who was domiciled in Wisconsin at the time of death.¹³ There is no requirement that the surviving spouse be a Wisconsin domiciliary. If a decedent is not domiciled in Wisconsin but owns property here, the rights of the surviving spouse are governed by the laws of the state of the decedent's domicile.¹⁴ A special rule applies if the surviving spouse caused the decedent's death.¹⁵

2) What property is covered? The election applies to the "augmented deferred marital property estate," which is the total value¹⁶ of all the deferred marital property of both spouses, irrespective of where the property was acquired or where the property is located, including real property located in another jurisdiction.¹⁷ Wis. Stat. section 861.02(2)(b) summarizes the categories of deferred marital property included in the augmented deferred marital property estate:

• probate and nonprobate transfers of the decedent's deferred marital property, as detailed under Wis. Stat. sections 861.03(1) to (3);
  
  
• various gifts of deferred marital property made by the decedent during the two years before death, as detailed under Wis. Stat. section 861.03(4); and
  
  
• any deferred marital property held by (or attributed to) the surviving spouse that would have been included in the above two categories had the surviving spouse been the one who had died, as detailed under Wis. Stat. section 861.04.

4) Personal liability of "unentitled" recipients. Under Wis. Stat. section 861.07, the original recipient of the decedent's deferred marital property transferred to others is liable for his or her share, irrespective of whether the recipient still has the property or its proceeds. If an original recipient gratuitously transfers the property to another person, the subsequent donee also is personally liable for the share if the donee still has the property or its proceeds, or if the donee knew or should have known of the liability.²²

5) Protection of "innocent third parties." Under Wis. Stat. section 861.11, if a third party payor - such as an insurance company - does not have written notice of an actual or intended filing of the deferred marital property election, it can pay to the named beneficiary and take other actions in good faith without incurring any liability. However, if proper notice has been served, then this exemption from liability is removed for third party payors other than banks. At that point, the third party payor either may continue to hold the property pending instructions from the court, or discharge its obligation by turning the property over to the relevant probate court. Banks have the same options, but alternatively may distribute the property to the named beneficiary without liability.

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