Divorce Proceedings, the Death of a Spouse, and Marital Assets

In Nelson v. Nelson, A14-0200, (Minn. Ct. App. Oct. 6, 2014), the Minnesota Court of Appeals held that Minn. Stat. 518.58, subdivision 1a, which prohibits spouses contemplating divorce from transacting in or using marital assets so as to obtain a loss or profit without first getting consent from the other spouse’s consent, applies only to dissolution proceedings, and, therefore, do not apply when dissolution proceedings are terminated by a party’s death.

Nelson v. Nelson

In this case, the appellant, Kimberlee Nelson and her husband, Michael Nelson, were married in 1996. His will intentionally omitted his wife as a beneficiary of the estate. In 2007, he bought a life insurance policy with a million dollar benefit, naming his wife as the primary beneficiary, with the premiums being paid by his business. Then, in February 2012 he asked an attorney to prepare a joint petition and stipulation to dissolve his marriage to Kimberlee. Before he initiated the divorce proceedings, he changed the beneficiary of his life insurance policy to his parents and sister. After doing so, in May 2012 he served Kimberlee with a summons and petition for divorce. He died in September 2012, before the marriage could be dissolved.

After Michael died, his mother was appointed personal representative, and Kimberlee, his widow, asked for the rights of a surviving spouse despite the being excluded from her husband’s will, including homestead rights, a family allowance, household furnishings, and an elective share of his estate. She also brought a declaratory judgment action, claiming that the change of designated beneficiary of the life insurance policy constituted a transfer of marital assets in contemplation of divorce, which is barred by Minnesota Statute Section 518.58, subdivision 1a. The district court granted summary judgment to Michael’s parents and sister, and an appeal followed.

The Minnesota Court of Appeals affirmed the district court’s decision and held that the statutory prohibition on transferring assets did not apply in this case because there was no dissolution proceeding, as the husband died. The court held that the only remedy available under Section 518.58, subdivision 1a, is one imposed in a dissolution proceeding during the division of marital property. Thus, if one spouse has violated the provision, the court “may impute the entire value of an asset and a fair return on the asset to the party who transferred, encumbered, concealed, or disposed of it” in the dissolution proceeding. But, because Michael was dead, there was no dissolution proceeding available for a remedy. Under Minnesota law, when a party to a marriage dies during the pendency of a dissolution proceeding, the dissolution proceeding is terminated because the marriage, having been ended by death, no longer needs to be dissolved. Thus, when Michael died, his wife was his surviving spouse, and had no dissolution proceeding pending to obtain the requested relief.

The Minnesota Court of Appeals made clear that it frowns on “double-dipping,” namely using rights as a surviving spouse and as a party to a dissolution proceeding. Thus, Kimberlee was limited to her rights as a surviving spouse, and a spouse only vests in life insurance benefits if she is the beneficiary at the time of death.