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Spousal entitlement to death benefits

A recent split decision of the Ontario Court of Appeal in Carrigan v. Carrigan Estate delivered an unexpected and unsettling interpretation of spousal entitlement to a pre-retirement death benefit under the Pension Benefits Act (the “Act”).

According to the facts of the case, Mr. Carrigan  was separated, but never divorced, from his legally married spouse. After separation, he designated this spouse and children as beneficiaries under his pension plan. When Mr. Carrigan died while still actively employed, he was living with his common-law spouse of many years. In  determining entitlement to the death benefit, the Court rejected both spouses’ claims to entitlement on the basis of spousal priority. Instead, it  declared that the member’s legally married spouse and children were entitled to the pre‑retirement death benefit given that they were the designated beneficiaries.

Under the statutory scheme of the pre-retirement death benefit in Ontario, the spouse at the date of death has priority entitlement (s. 48(1) of the Act), unless the member and spouse are living “separate and apart” at the date of the member’s death (s. 48(3) of the Act). The Act includes legally married and common-law spouses in the definition of “spouse”.

Unless there was a spousal waiver of the benefit, administrators have long interpreted the scheme to give spousal priority to the cohabiting  spouse at the date of death without requiring any further consideration. In the Court’s interpretation, however, the spousal priority provision applies only if there is no spouse living “separate and apart” at the date of death. If there is a spouse living “separate and apart,” spousal priority is  eliminated entirely. Payment of the benefit will then be made either to a designated beneficiary or, if none, to the estate of the deceased member.  Applying that analysis to the Carrigan circumstances, the Court found that there was a spouse living “separate and apart,” i.e. the spouse from  whom he separated but never divorced. Therefore, spousal priority disappeared in respect of the common-law spouse and the designated beneficiaries were entitled to the benefit.

On November 28, 2012, the common-law spouse succeeded in obtaining a stay of the judgment (i.e. a temporary delay). This ruling calls into question decades of administrative practice with respect to determining spousal entitlement to pre‑retirement death benefits. It may also have some impact on entitlement to post‑retirement death benefits.