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January 04, 2012
A beneficiary designation can overrule other agreements

A New Brunswick court has dismissed an action by a deceased’s estate to claim the proceeds of a supplementary life insurance policy and pension plan that were awarded to a spouse he divorced more than 15 years ago. 

The deceased became a member of the Public Service Pension Plan in 1977.  Later, in 1978, he also purchased a supplementary life insurance policy through his employer.  In both cases, he designed his then-spouse as beneficiary.

The couple separated in 1992 and divorced in 1995.  Their separation agreement appeared to settle all issues between them and included a release of all interest by the former wife in the member’s pension plan.

However, the member did not change the beneficiary designation of either the pension or the insurance policy.   When he died in 2004, proceeds for both the pension and the insurance policy were awarded to the ex-spouse.

Acting on behalf of the deceased man’s estate, his children then began litigation, arguing that the benefits could only be held by the ex-spouse as a “constructive trust” for the ultimate benefit of the estate.  In their argument, they used the 1992 separation agreement as proof that the divorced couple no longer had any formal connection with each other and that the proceeds were never intended to go to the ex-spouse.

In reviewing the case, the court concluded that, despite the fact that the former couple’s separation agreement absolved the former wife of any interest in the pension plan and insurance policy, the specific provisions of the law covering the revocation of beneficiaries overrule any beneficiary designations that may be made through a will or other agreement.

“The deceased had the right to remove his ex-wife as a beneficiary of the benefits but did not do so,” the court noted.  “He may have intentionally left her as the beneficiary, or it may have been neglect or inadvertence.  As a result, she was entitled to receive the benefits...”

For plan members and administrators, the New Brunswick ruling re-iterates the importance of ensuring that all insurance, pension, retirement savings, benefits and other documents with beneficiary designations be updated immediately when a beneficiary change is required.  Even when there may be evidence to the contrary, such as a separation agreement or other document, the courts will give precedence to the signed beneficiary designation of the policy or pension in question.

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