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.
3) Will the surviving spouse be entitled to the election?
The purpose of the election is to ensure that the surviving
spouse ends up with an amount equal to at least half the value
of the augmented deferred marital property estate.18In
the typical situation, the surviving spouse will already hold
some deferred marital property, and the value of the transfers
from the decedent spouse to the surviving spouse during life
or at death will easily exceed the remaining amount. As noted
above, in a marital property system the deferred marital property
elective share is the only obligation that the decedent spouse
has to the surviving spouse.19
Thus, in the context of the deferred marital property election,
a transfer from any source - the decedent's interest in marital
property, deferred marital property, individual property, or
deferred individual property - counts towards satisfying
the elective share amount.20
To the extent that these transfers are not sufficient to satisfy
the elective share amount, Wis.
Stat. section 861.06 provides that the remainder is satisfied
proportionally from the decedent's transfer of deferred marital
property to third parties.21
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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