Death during a Divorce

In Oregon, a couple is married until the death of one spouse or a judge signs, and the court enters, a formal judgment dissolving the couple’s marriage.  Up until the occurrence of one of these events, the parties are considered married.  Contested divorces generally revolve around who gets what property.  Consequently, when an individual going through a divorce dies during the divorce the question becomes two parts, “what happens to the divorce and who gets what property?”

As an example, assume John and Mary are both on their second marriage and are going through a divorce.  John has one minor child.  They have no children from their marriage.  They own their house as husband and wife and it’s free of any encumbrances. During the divorce the property is appraised to be worth $500,000.00.  Before John and Mary were married, John took out a life insurance policy insuring his life with a death benefit of $1,000,000.00. During the marriage, John changed the beneficiary of that policy from his son to Mary.  John owned an investment account in his own name with a balance of $100,000.00 and no payable-on-death beneficiary.  John also has a 401K valued at $400,000.00 which names Mary as the primary beneficiary.

John and Mary were in the process of negotiating the final points of a settlement agreement which gave John sole ownership of his investment account, the life insurance policy and the 401K when John suddenly and unexpectedly died.  John was prepared to change the beneficiary designations on those accounts as soon as the settlement agreement was signed.  At the time of John’s death he did not have a will.

When John dies, the divorce proceedings halt and essentially the divorce proceedings are dismissed.  John’s personal representative (executor) cannot continue the divorce proceedings.  Therefore, at the time of John’s death, he and Mary are married and Mary is John’s “surviving spouse”.

Generally, if one spouse dies during the divorce proceedings, then the surviving spouse will be entitled to receive all of the deceased spouse’s probate estate.   This result occurs if the deceased spouse does not have a will (dies intestate) or if the deceased spouse has a will that leaves all of the spouse’s property to the surviving spouse.  However, since John has a child from a previous marriage, Mary would only receive half of his probate estate and his son would receive the other half of his probate estate.

The deceased spouse may be able to avoid this result if, during the divorce, the deceased spouse changed his will, leaving his probate estate to the couple’s children or a trustee.  There is no statutory prohibition to changing wills, powers of attorney or health care directives during a divorce.

However, since a will can only distribute probate property, a majority of the deceased spouse’s property will most likely be transferred to the surviving spouse since most couples own their property as joint owners.  Non-probate property includes: real property, and financial accounts owned by the couple as husband and wife, joint tenants or tenants by the entirety.  Property with these types of ownership designations will transfer to the surviving spouse automatically upon the death of the first spouse.

Other non-probate assets include life insurance, retirement accounts, and bank and investment accounts that have payable-on-death beneficiaries.  During divorce proceedings, Oregon law prohibits a spouse from changing a beneficiary designation on a life insurance policy if the beneficiary is the other spouse or minor children. Consequently, John’s house, his 401K and the life insurance proceeds are all non-probate assets and are transferred directly to Mary – without probate.

Due to John’s untimely death, Mary will receive the house, John’s 401K, $1,000,000.00 in life insurance proceeds, and $50,000.00 from his investment account.  John’s son will receive $50,000.00 from John’s investment account. Although this result seems unfair, it may have been avoided if John had a prenuptial agreement or had some estate planning in place.

©03/30/2011 Kevin J. Tillson of Hunt & Associates, PC

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