Wednesday, March 18, 2009

MacMichael v. Strocel

What happens if on a marriage breakdown the husband promises his former wife that if he dies before her, she will receive his pension benefits, but on his death the pension plan requires that the benefits be paid to his second wife?

The Supreme Court of British Columbia considered this issue in MacMichael v. Strocel, 2009 BCSC 290.

On the breakdown of his marriage to Fern MacMichael, James MacMichael agreed in their separation agreement, dated September 24, 1971, that in his will he would leave her any death benefit payable to his estate and all pension benefits.

He remarried in 1973.

In August of 2000, James MacMichael signed a new will in which he left Fern MacMichael $2500, any lump sum death benefit payable from his Federal Pension Plan and the Canada Pension Plan, and one-eight of the residue of his estate.

When he died on April 15, 2006, the survivors benefits under his pension plan were payable to his widow, Marie MacMichael. This is a requirement of the Public Service Superannuation Act, which governs the pension plan.

Fern MacMichael sued the executor of James MacMichael’s will for damages against the estate for breach of the separation agreement. She also sued Marie MacMichael for the survivorship pension benefits.

The executor of James MacMichael’s will acknowledged that the deceased had breached the separation agreement, but there were insufficient assets in his estate to fully compensate Fern MacMichael for the value of the survivors’ pension benefits.

Fern MacMichael asked the court to declare that James MacMichael held the survivors’ benefits in trust for her. She argued that the separation agreement created a trust, or alternatively that allowing Marie MacMichael to keep the benefits would unjustly enrich her.

Madam Justice Stromberg-Stein ruled that the widow was entitled to keep the survivors’ benefits. The separation agreement did not contain wording that would create an express trust for the benefits.

The Court also rejected the argument that the widow was unjustly enriched. To establish unjust enrichment, Fern MacMichael would need to establish three things:

that Marie MacMichael was enriched;
that Fern MacMichael suffered a deprivation; and
that there was no juristic reason for the enrichment.

In this case there is a juristic reason for the enrichment, namely the provision of the legislation governing the pension plan. Depriving James MacMichael’s widow of the survivors’ benefits to which she was entitled to under the pension plan would be unfair and unjust to her. Accordingly, it would be inappropriate for the court to impose a constructive trust on the benefits in favour of Fern MacMichael.

Madam Justice Stromberg-Stein granted a judgment for $48,000 against James MacMichael’s estate, but dismissed the claim against Marie MacMichael.

It should be noted that there have been significant changes in the laws in British Columbia relating to the division of pension plans on the marriage breakdown since the 1970s, when James and Fern MacMichael separated. These changes offer better protection to former spouses of pension plan members, but the law is complex. If you are going through a marriage breakdown, and you or your spouse in a member of a pension plan, you would be well advised to consult with a family-law lawyer with experience in dealing with pension plan divisions.

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