Can a person that is institutionalized be served divorce papers?

Yes, they can be but the question here is has she been adjudged to be mentally incompetent? It would appear that the answer is yes.  Then has someone been appointed as her guardian?  Would that be you? Then that may be a problem for you here.  Also, the grounds for the divorce are an issue. If the grounds are those such as cruel and inhuman treatment but the underlying actions were due to the incompetence, then, well, there may not be grounds for divorce.  I would strongly suggest that you seek consultation from a divorce attorney in your area as to the manner in which you are to proceed.  The law is not going to keep you in a marriage that you do not want to be in solely because of your wife's condition, but speed need to give way to proper procedure to insure that everything is done legally and with finality.  Good luck.