SPOUSAL RELATIONSHIPS AND ESTATE LITIGATION – PART IV

A Separation Agreement may purport to release the spouses from all claims including any claims to a share in company pension plans, RRSPs, etc. As such, A Separation Agreement can be an “instrument” as that term is referenced in s. 51(1) of the Act although the term itself is not described in the statute (see Burgess v. Burgess Estate [2000] O.J. No. 4846 (Ont. C.A.).

In Burgess v. Burgess Estate, the deceased had designated his first wife as beneficiary of his deferred pension sharing plan (DPSP), which he held with his employer, during the course of his marriage. He subsequently entered into a Separation Agreement in which he reduced her entitlement to one half of the DPSP. He subsequently remarried and made a new Will leaving his entire estate to his second wife and the children of his first marriage.

On an application before Madam Justice Haley, the first wife sought a declaration that she was entitled to the whole of the DPSP. The first wife essentially made the same argument which was accepted by the courts in the line of cases in which Wills which were inconsistent with Separation Agreements were found to prevail: in her submission, she did not, by the Separation Agreement, “waive the right to claim if the deceased spouse chose not to alter his or her beneficiary designation so as to eliminate her as a beneficiary.”

Madam Justice Haley accepted the reasoning: the contract between the employer and its employee was separate from the marriage. Not being a party to the Separation Agreement, the employer, with whom the deceased filed his beneficiary designation, could not be said to have been bound by the Agreement. If the deceased truly intended to eliminate or reduce the entitlement of his spouse, he would have changed the beneficiary designation at the source. Accordingly, Justice Haley found that the Separation Agreement had no effect on the beneficiary designation.

This decision was reversed on appeal. The Court of Appeal determined that the Separation Agreement was an instrument that revoked the beneficiary designation on file with the holder of the Plan. The subsequent Will not “relating expressly to, a plan, either generally or specifically” did not effect the beneficiary designation of the Plan contained in the Separation Agreement.

In Klassen Estate v. Klassen (1998) 22 E.T.R. (2d) Man. Q.B.), the Court considered a situation in which a second wife was named as beneficiary under several instruments notwithstanding the fact that: (i) she was divorced from her deceased husband, (ii) she had entered into a Separation Agreement; and (iii) he had made a new will leaving all his property to the children of his first marriage. The Court in this case considered parol evidence of the deceased’s intention which was clearly to exclude the benefit to his second wife. Although the Court could not find a legal basis to set aside the beneficiary deisgnation, it found that the second wife, as designated beneficiary, held such assets on a resulting trust for the benefit of the estate.

Klassen therefore provides a creative option to litigation counsel to seek to find a way out of the dilemma posed by a defective Separation Agreement.

In summary, if spouses, when they separate, wish to disentitle their surviving spouse from any interest in their estate, consideration must also be given to the status of their Wills. Counsel of caution suggests that a new Will (or a first Will!) should always be made after a Separation Agreement.

The use of direct and cogent wording would appear to be a requirement in any Separation Agreement that also seeks to sever a joint tenancy or revoke a beneficiary designation.

Ian and Suzana will return on Monday. Have a great day, David.