New York Law School

Art Leonard Observations

Same-Sex Couples: Avoid Intestacy and Avoid Litigation!

Posted on: August 18th, 2013 by Art Leonard No Comments

An August 8 decision by the Superior Court of Pennsylvania (an intermediate appellate court) shows why same-sex couples, especially in states that do not provide any legal status for same-sex couples, should take the trouble to make wills and other legal documents to deal with contingencies, pending the time that same-sex marriage becomes available in the state.  Although the court’s ruling in In re Estate of Richard A. Devoe, 2013 Pa. Super. LEXIS 2129, may eventually turn out well for his surviving former domestic partner, James B. Mooney, some prudent advanced planning could have avoided some of the mess that resulted when Devoe unexpectedly died intestate in his 40s as the result of an accident at home, survived (in addition to Mooney) by his parents and two siblings.

Under Pennsylvania law, when an unmarried person without children dies without a will but is survived by his parents, the property (real estate, goods, money) that he owns at his death goes to his parents.  (When a marriage person without children but with surviving parents dies, the surviving spouse automatically gets $30,000.00 plus half of the remaining balance of the estate, the other half going to the parents.) When a person dies without a will, the court will appoint somebody to administer the estate, and preference will normally be given to surviving relatives, such as siblings or parents.  And a surviving unmarried same-sex partner will be pretty much left out in the cold to fend for himself.  Things can get complicated, as they did in this case.

The opinion for the court by Judge Shogan is a bit terse in relating the facts.  Shogan describes Mooney and Devoe as “at one time, domestic partners,” but does not make clear whether their partnership had ended prior to Devoe’s death.   Perhaps they had registered as domestic partners with the city of Harrisburg.  They bought a resident there in 1998 as “joint tenants with the right of survivorship,” a status that means if one of them dies, the other automatically becomes the sole owner of the property.  Both of their names would be on the deed of purchase.  The opinion does not mention whether they bought this property with cash, and does not mention them having jointly taken any kind of loan to finance their purchase.  The opinion also doesn’t mention whether, when Devoe later took out a mortgage loan against the property in 2008, the men were still domestic partners.  One suspects they were not, but the opinion doesn’t specify.  At any rate, Devoe took out this loan in order to purchase some commercial property, which he leased to a company, Monard Testing, LLC, of which he was a 5o% owner.  (So, in effect, he borrowed against his home in order to finance his business.)  Mooney had no interest in the business.  Until his death, Devoe continued to make the payments on this loan.

In October 2009, Devoe, then age 43, died when he fell down the stairs at home, without having made a will.  Upon Devoe’s death, Mooney became the owner of the residence, which was encumbered by the balance due on the mortgage Devoe had taken out the previous year.  given how mortgages work, less than a year of payments would mean that the principal due at that point was close to the full amount of the loan, since a large share of monthly payments in the early years of a mortgage goes to interest. 

In January 2010, the court appointed Devoe’s brother and sister to be co-administrators of his estate.  Mooney asked them to have the estate pay off the outstanding loan against the house.  (Recall that upon Devoe’s death, Mooney became sole owner of the house, so it was not part of the estate.)  The administrators declined, stating that the estate did not have the cash to do so, and would not have any cash until they could sell off some of the assets held by the estate, which included the commercial property (whose purchase, recall, was financed by the mortgage against the residence), Devoe’s ownership share in the business, and some personal property (like his BMW).  Although the estate contacted the bank about the mortgage loan and said they intended to pay it, they asked the bank to hold off on any foreclosure while the estate got together the necessary funds, but they never did pay it, having evidently figured out that because the estate no longer owned the property, they didn’t have to pay it, and the bank filed a foreclosure action.

In February 2010, Mooney filed a Notice of Claim with the Estate for the principal amount of the loan that was due, but no money was forthcoming.  Mooney then sold the house in September 2010, using the proceeds to pay off the bank loan and put a stop to the foreclosure proceeding.  The next month, the Estate sold the commercial property privately to one of Devoe’s friends for less than he had paid for it, and later sold Devoe’s interest in the business to his business partner for a pittance.  The Estate did not sell any of Devoe’s personal property (including the BMW), purportedly for “sentimental” reasons.  When the Estate filed its petition for a final settlement, Mooney filed objections, seeking to be repaid the $132,400.00 that he had to cough up to clear the title to the residence before he could sell it.  (He sold it for about $136,000.00.)

The trial court denied Mooney’s petition for payment, finding that since he was not personally obligated on the loan, he had paid it off as a “volunteer,” and was thus not entitled to reimbursement.  The Superior Court reversed. 

“Upon careful review of the record,” wrote Judge Shogan, “we are compelled to disagree with the conclusion reached by the trial court in its refusal to apply the doctrine of equitable subrogation.  Rather, we are constrained to conclude that the trial court erred in finding that Mooney could not be equitably subrogated as a surety who provided financing for a defaulting debtor, Decedent and the Estate.”  In this case, “it is undispute that the Estate defaulted on the HSBC Loan, issued solely to Decedent, and HSBC initiated foreclosure proceedings on the Residence, which was owned by Mooney.  Mooney testified that he was compelled to sell the Residence in order to stop the foreclosure proceedings on the Residence, protect his own personal credit, and satisfy the HSBC Loan. . .  Thus, due to the Estate’s refusal to pay the HSBC Loan, Mooney had a legal duty to compensate HSBC with proceeds from the sale of the Residence, by virtue of the mortgage granted upon the Residence.  It makes no difference that Mooney’s legal duty was triggered following the default by Decedent and the Estate.  The law will not penalize a surety for good faith conduct that resulted in a party being completely and promptly paid.  Further, allowing subrogation will not cause injustice to the rights of others.  Accordingly, we conclude that the trial court abused its discretion in reaching a contrary conclusion with regard to this issue.”  Having decided on this theory, the court said there was no need to address Mooney’s alternative theories for recovery, including that the Estate (and, ultimately, Devoe’s parents) would be unjustly enriched if not required to compensate Mooney for paying off the mortgage loan against the property.  (They would be unjustly riched because they enjoyed the proceeds from sale of the commercial property, which Devoe had bought using the money from the loan he took out against the residence.)

The ambiguous wording of facts by the court makes it difficult to unravel this story, which reads quite differently depending upon whether Mooney and Devoe were still domestic partners at the time of Devoe’s death, or whether they had separated, with Mooney moving out.  If the men were no longer domestic partners when Devoe applied for the mortgage loan against the house, one has to question why HSBC was willing to make the loan without insisting on including Mooney as a debtor, since both men’s names presumably appeared on the original deed of sale of the residence to them?  Shouldn’t Mooney’s permission have been required, inasmuch as he would become owner of the property in case Devoe died, and the property was being encumbered by the loan.  If Devoe had made a will, instructing his executor to pay off the loan upon his death notwithstanding that ownership of the residence would not be part of his estate, the problem in this case would not have occurred; the executor would have sold the commercial property and used the proceeds to pay off the mortgage on the residence (and Moooney’s sale of the property shows that it could be sold for more than the remaining principal balance of the loan). 

If Pennsylvania recognized same-sex common law marriages, or had a marriage equality or civil union law in place under which Devoe and Mooney could have become legal spouses, this would likely have played out differently, even had Devoe died intestate.  But the lack of such a legal framework makes it all the more important for same-sex couples to make wills, financial powers of attorney, and other documents against the possibility of unforeseen accidental death.

Things are moving along in the quest for marriage equality in Pennsylvania.  The ACLU has filed a lawsuit, premised on the reasoning of U.S. v. Windsor, to challenge the existing legal ban on same-sex marriage.  Presumably, a Pennsylvania court could, even in the absence of this lawsuit, rule in another case that a cohabiting same-sex couple should be considered to have a common law marriage, using fedearl equal protection doctrine to overturn earlier Pennsylvania precedents to the contrary.  One county clerk (in Montgomery County) and one mayor (in Allegheny County) have engaged in civil disobedience on this issue, performing marriages for same-sex couples, and a lawsuit by the state government is on file seeking injunctive relief against them.  Things are definitely coming to a boil in Pennsylvania.  The court’s ruling in Estate of Devoe is just one more piece of evidence that the state’s failure to adjust its legal framework to take account of same-sex couples and their business dealings is an example of governmental negligence.  Time to update the law to cope with the reality of modern family life in PA.

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