Death & Divorce Part 2 – Dying With a Will or Trust
As if getting a divorce weren’t difficult enough, what happens when one spouse dies before the divorce becomes final? Part 1 of this series addresses what happens when the deceased spouse died without a Will or Trust. Part 2 covers situations in which there was a Will and Trust. Part 3 covers how to handle lump-sum spousal support (alimony) and attorney’s fees pertaining the divorce after one spouse dies.
Unlike most states that abate or stop the case if a spouse dies during divorce, New Mexico law says the divorce continues as though the spouse had not died, substituting the Personal Representative of the estate of the deceased spouse as the party in the divorce litigation.
In 2011, the New Mexico Supreme Court issued its decision in Oldham v. Oldham, a case in which the court was required to interpret and harmonize potentially conflicting provisions of the domestic relations, probate, and trust laws to determine the process through which a decedent’s estate is defined and distributed when one party to a pending divorce case dies before a final divorce decree is entered. In Oldham, the Supreme Court started its analysis by recognizing the domestic relations court is required to continue the divorce as if both parties had survived, but then framed the issue by asking whether a marital property judgment entered into under the domestic relations law (Section 40-4-20(B)) can statutorily revoke a decedent’s Will or Trust.
The Supreme Court concluded: (1) the decedent’s Will and Trust are NOT statutorily revoked by the entry of a divorce property judgment; and (2) before the divorce proceedings can be continued, a personal representative who is not disqualified by a conflict of interest must be appointed to represent the decedent’s estates through the conclusion of the divorce, i.e., the surviving spouse cannot serve as the personal representative of the deceased spouse’s estate in the divorce case because of the inherent conflict of interest; and (3) after the divorce case concludes, the decedent’s estate can be distributed per the Will and Trust and the governing New Mexico probate statutes.
What happened in the Oldham case? In March 2004, Husband and Wife jointly executed the Oldham Revocable Trust Agreement (Trust) naming themselves as the Co-Trustee and Settlors. Per the Trust, each spouse reserved the right to revoke and terminate the Trust, without the consent of the other spouse, as it affects his or her separate and community property. Such revocation would be done by written document signed by the revoking spouse and delivered to the Trustee. However, upon the death of the first co-trustee / spouse, that spouse’s share of the Trust property became irrevocable (permanent). On the same day the Trust was signed, Husband signed his Will, naming Wife as his Personal Representative and giving his entire estate, with a few personal property exceptions, to be administered as part of the Trust. At the litigation stage, the parties agreed that both the Will and the Trust were validly executed and that neither document was amended or revoked prior to Husband’s death.
Fast forward three years. In February 2007, a divorce petition was filed on Husband’s behalf. Wife timely filed a motion to dismiss the petition, alleging that Husband was not competent to file for divorce and that he was coerced to do so by relatives. Whether Husband was competent when he filed for divorce remained a contested issue and no final decree of divorce was entered at the time the appeal was filed. The divorce case was put on hold during the appeal.
In May 2007, nearly four years after being diagnosed with brain cancer, Husband died before the divorce finished. After Husband died, Son filed an application in probate court seeking to be appointed Personal Representative of Husband’s estate, and Wife filed a counter-application to serve as the Personal Representative, arguing she had priority to serve because Husband nominated her in his Will. The district court concluded as a matter of law that only a final decree of divorce, and not the mere filing and serving of the divorce petition, is sufficient to revoke the Will and Trust. The district court declared the Will and Trust to be unrevoked and fully enforceable, and appointed Wife as the Personal Representative of Husband’s estate.
Son filed an appeal. The Court of Appeals reversed the district court on the issue of Wife’s appointment as personal representative due to the conflict of interest that exists if Wife represented Husband’s estate against herself in the divorce. The Court of Appeals also reversed on the determination that the Will and Trust were unrevoked and remanded both issues back to the district court for further proceedings.
Wife appealed to the New Mexico Supreme Court to address two issues: (1) whether a final judgment distributing marital property pursuant to Section 40-4-20(B) of the domestic relations laws revokes the governing estate planning instruments (Will and Trust) of the deceased party when that spouse dies during the pendency of the divorce case; and (2) whether an inherent conflict of interest disqualifies Wife from serving as the personal representative of Husband’s estate.
On the first question, the Supreme Court ruled that Section 45-2-804 of the probate code did not apply to the case because it provides the statutory mechanism for the revocation of a revocable trust, and Husband’s Will and Trust became irrevocable when he died by the language in both documents; therefore, Husband’s Will became effective and irrevocable upon his death. Furthermore, Husband’s share of the Trust property was also irrevocable when he died based on his intent as expressed in the language of the Trust document. The court reached this conclusion by reviewing the statutes that control how a Will or Trust can be properly revoked under the Uniform Probate Code (UPC) and the Uniform Trust Code (UTC). The primary purpose of both the UPC and UTC is to discover and make effective the intent of a decedent in distribution of his property. The UPC provides the exclusive methods by which a Will can be revoked, such as executing a subsequent Will or by performing an act that revokes the existing Will by burning, tearing, canceling, obliterating or destroying such Will with the intent to revoke it. In the Oldham case, there was no dispute that Husband neither executed a subsequent Will nor performed an act to revoke his existing 2004 Will. Under the UTC, the Trust provided the means by which it could be ended – signing a duly executed instrument revoking the agreement and delivering it to the trustee, before dying. Husband did not do this.
Son argued that Husband’s filing and serving the divorce petition on Wife demonstrated clear and convincing evidence of his intent to revoke the Trust. The Supreme Court did not rule on Son’s argument because he did not properly preserve the argument or present legal authority supporting his claim. As a matter of law, an appellate court will not review issues raised in appellate briefs that are unsupported by cited authority.
In the alternative, Son argued that a marital property judgment entered under the domestic relations laws will act to revoke Husband’s Will and Trust posthumously. The Son relied on Section 45-2-804(B)(1) of the UPC, which provides for “revocation of probate and non-probate transfers by divorce”, specifically, that the “divorce revokes any revocable disposition of property to the decedent’s former spouse made in a governing instrument, such as a will or trust, and revokes as well the decedent’s nomination of the former spouse to serve as personal representative or trustee. The Supreme Court rejected Son’s interpretation because it found both the Will and Trust became irrevocable and effective when Husband died; thus, neither the Will nor Trust can be revoked through the “by divorce” provisions of the UPC or UTC.
On the second question, the Supreme Court ruled that Wife was disqualified by a conflict of interest from serving as Husband’s personal representative during the remainder of the divorce case because Wife’s interests are directly adverse to the interests of Husband’s estate.
The Supreme Court laid out the procedural sequence that must be followed in cases where one party to a pending divorce dies before the entry of the final divorce decree. First, the deceased’s estate must be defined through the entry of a marital property judgment under the domestic relations law. Second, once the deceased spouse’s property and debts are determined in the divorce, then the decedent’s estate can be distributed in accordance with the probate laws.
If the party to a pending divorce dies intestate (without a Will), then the divorce court must determine the extent of the decedent’s separate property and share of community property in order to figure out what property will pass by intestacy. If the deceased party dies with a valid Will or Trust, then the divorce court must first determine what separate and community property will pass under the Will or as part of the Trust.
In conclusion, the death of one spouse during a divorce does not stop the case. Lawyers and judges faced with such situations must analyze both the domestic relations and probate laws to determine who gets what in the divorce before ascertaining what property and debts constitute the estate of the deceased spouse available for passing on to the heirs.