Cohen, Richard S., J.s.c.
This suit focuses on New Jersey's surviving spouse's elective share statute. N.J.S.A. 3B:8-1 et seq. The issues include the
proper date and manner of valuation of the estate and the elective share, the disposition of realized and unrealized gains and losses during administration, the right of the surviving spouse to a portion of estate income before distribution, and the assessability of the elective share for estate and inheritance taxes.
The decedent died in 1981, leaving two adult daughters, a widow whom he married in the months preceding his death, and a sizable estate. His will gave to the widow one half of his tangible personal goods, a home in Metuchen and 10% of the shares in a real estate holding company. It expressly disinherited his former wife and created a residuary trust for each of his daughters. His disposition scheme has generated a good deal of litigation among the beneficiaries.
Three suits were filed and two were eventually consolidated. One of them was filed here by a daughter of the decedent against her sister, her father's estate and four family-owned business entities. She charged mismanagement and oppression and sought dissolution of the entities. On the estate's motion, the widow was joined as a defendant because the will gave her shares in one of the entities. She was also a potential part-owner of other estate assets by reason of her statutory elective rights.
Meanwhile, an attack was made in the Probate Division on the validity of the decedent's Will and of his second marriage. The Probate Division admitted the will and upheld the marriage. Later, the widow timely filed a complaint by which she elected to take her statutory share of the estate under N.J.S.A. 3B:8-1 et seq. That matter was then consolidated into the business-entities suit that was already pending here. The latter suit was subsequently settled, leaving for decision the large number of issues raised respecting the widow's elective share.
Until 1980, New Jersey remained one of the states without a statute providing an elective share for a surviving spouse. We still relied on a statutory version of the ancient rights of dower and curtesy. Because they created rights in real property only, dower and curtesy did not touch the principal forms of modern wealth and were easily defeated by the creation of corporations to hold real estate. To remedy those defects and better protect the surviving spouse, the Legislature enacted the elective share statute, originally N.J.S.A. 3A:38A-1 et seq. See Horn, Residential Real Estate Law and Practice in New Jersey, Sec. 2.2(b)(ii) (1983 Supp.) The statute was recodified without material change in N.J.S.A. 3B:8-1 et seq. (All further reference will be to the later codification.)
Much of our statute follows the Uniform Probate Code. Sections 1 and 2 say it applies to the post-May 28, 1980 estates of New Jersey domiciliaries and to the surviving spouses with whom they were cohabiting at the time of death. The spouse is given a choice. By doing nothing, she*fn1 may choose to take what the decedent left her when he died. However, she may elect to take one third of his "augmented estate." The augmented estate is the probate estate, less funeral and administrative expenses and provable claims plus the value of certain inter-vivos and non-probate transfers to others, plus the value of certain inter-vivos and non-probate transfers to the surviving spouse, including life insurance proceeds and pensions payable to the spouse but not to others. N.J.S.A. 3B:8-3, 6, 7. The augmented estate includes out-of-state real property to the same extent as it would be included if it were located in New Jersey. See N.J.S.A. 3B:8-2.
The right of election may be waived by written agreement before or during marriage. N.J.S.A. 3B:8-10. Absent such waiver, the election is made by filing a Superior Court complaint within six months (which may be extended by the court) of the appointment of an estate personal representative. N.J.S.A. 3B:8-12. The court, after appropriate proceedings, fixes the value of the elective share and the manner of its satisfaction from the augmented estate and the persons liable for contribution. N.J.S.A. 3B:8-18 and 19. Those are persons who are already in possession of assets includible in the augmented estate. They are required to participate in the payment to the electing spouse.
It is notable that the elective share is not a fraction of the residuary estate or the probate estate but of the augmented estate, which includes other equivalents of testamentary transfers. Equally important, the burden of satisfying the spouse falls on both the probate estate and the recipients of transfers includible in the augmented estate.
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. 3B:8-15 to order the manner of its payment. N.J.S.A. 3B:8-18(a) says that the elective share shall be satisfied first by applying
[t]he value of all property . . . owned by the surviving spouse in his 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 the result of 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 her calculated elective share. If it is greater than her share, she gets nothing more. If it is less, she ...