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February 12, 2014
New law lets common-law spouses receive pension death benefits

Proposed changes to Ontario’s Pensions Benefits Act (PBA) will mean that common-law spouses who lived with a deceased pension plan member at the time of his/her death will have priority over former spouses to receive survivor benefits.

The proposed amendments to the PBA, contained in Bill 151, clarify the term “spouse” in situations when more than one person could potentially be entitled to a pension’s survivor benefits.

The revision follows a complicated 2013 case involving a married couple that executed a will specifying that the wife would be the sole beneficiary of the man’s estate on his death.  However, the couple separated in 1996 but did not formalize the separation through any legal documentation, such as a separation agreement.  By 2000, the man began a common-law relationship with another woman.   Despite that fact, in 2002, he designated his former wife and their children as beneficiaries of his pension plan.  

In 2008, the man died and both the former wife and the common-law spouse claimed they were entitled to his pension’s death benefits.  The case then went to litigation.

Since, technically, both women met the spousal definition under the PBA, the Ontario Court of Appeal had to focus its review on Section 48 of the Pension Benefits Act, which deals with the disbursement of benefits to spouses “living separate and apart from the member.”  In its view, the terms and conditions in Section 48 of the PBA could only be met by a legally married or separated spouse, thereby giving priority to former spouses over common-law partners. (See January 2013 and June 2013 editions of the Coughlin Courier for background.)

The case ultimately went to the Supreme Court of Canada for a decision. However, it refused to hear the case.  As a result, the Court of Appeal decision became law.

The court decision reversed common pension administration practices. Until that time, plan administrators usually disbursed pension benefits to existing common-law spouses ahead of former spouses.  

The revised PBA specifies the following:

  • when a pension plan member is still legally married to a spouse from whom he/she is separated, and
  • is living with a new spouse in a common-law relationship, and
  • dies prior to retirement,

the common-law spouse will be entitled to the pre-retirement death benefit.

Similar rules will apply if the deceased member is already receiving a pension income.  

Under Section 44 of the revised PBA, if a member is living with a new spouse in a common-law relationship and draws a pension, the pension must be paid on a joint and last survivor basis, with the survivor pension being payable to the common-law spouse.

Since the plurality of Canada’s pension plans are registered in Ontario, the new law will apply to pensions across the country.

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