Life insurance is insurance against a person’s life that pays out money upon the death of the person. People typically purchase life insurance to support their family if they can no longer support their family due to death.
What happens if you get divorced? You probably no longer want your spouse to benefit from your death. If you have children, you definitely want your children to be the beneficiaries of a life insurance policy. Does your spouse have to get that money to support the children?
It all depends. If you already have life insurance an Illinois court has the power to decide who will be the beneficiaries of that policy.
“With respect to existing life insurance, provided the court is apprised through evidence, stipulation, or otherwise as to level of death benefits, premium, and other relevant data and makes findings relative thereto, the court may allocate death benefits, the right to assign death benefits, or the obligation for future premium payments between the parties as it deems just.” 750 ILCS 5/504(f)(1)
In Illinois, life insurance benefits do not automatically get awarded to the ex-spouse upon the moment of divorce (this is different than most states). You have to switch the beneficiary after the divorce.
However, a divorce decree can state the parties’ intent to declare a new beneficiary which will apply even if the party never got around to switching beneficiaries before death. Richard v. Martindale No. 09 CV 4159, slip op. (N.D. Ill. June 14, 2010).
The law requires that life insurance automatically drop an ex-spouse as a beneficiary after an Illinois divorce. This makes Illinois an “automatic revocation” state regarding life insurance.
“If a judgment of dissolution of marriage is entered after an insured has designated the insured’s spouse as a beneficiary under a life insurance policy in force at the time of entry, the designation of the insured’s former spouse as beneficiary is not effective unless:
(A) the judgment designates the insured’s former spouse as the beneficiary;
(B) the insured redesignates the former spouse as the beneficiary after entry of the judgment; or
(C) the former spouse is designated to receive the proceeds in trust for, on behalf of, or for the benefit of a child or a dependent of either former spouse.” 750 ILCS 5/503(b-5)(2)
If you’re divorced and you have an existing life insurance with your ex-spouse as the beneficiary, the alternative beneficiary will now get the life insurance proceeds.
“If a designation is not effective under [this statute] the proceeds of the policy are payable to the named alternative beneficiary or, if there is not a named alternative beneficiary, to the estate of the insured.” 750 ILCS 5/503(b-5)(3)
If your life insurance is through your work, your life insurance is likely governed by the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 832, 29 U. S. C. § 1001 et seq. If this is the case, your life insurance beneficiary is NOT automatically no longer your husband or wife upon divorce. You have to change the beneficiary manually or your husband or wife will still be able to collect on your life insurance as a beneficiary. Egelhoff v. Egelhoff, 532 U.S. 141 (2001)
Life Insurance And Maintenance (Formerly Known As Alimony)
Illinois divorce courts used to be able to order a new life insurance policy if the court ordered maintenance (formerly known as alimony).
Now, the court can only order life insurance to guarantee maintenance if the parties agree that life insurance is a good idea and want to be bound to keep life insurance through a court order.
“Maintenance secured by life insurance. An award ordered by a court upon entry of a dissolution judgment or upon entry of an award of maintenance following a reservation of maintenance in a dissolution judgment may be reasonably secured, in whole or in part, by life insurance on the payor’s life on terms as to which the parties agree” 750 ILCS 5/504(f)
If the divorcing couple cannot agree as to a life insurance policy, the court may only make orders as to already existing life insurance policies.
“[I]f the parties do not agree, on such terms determined by the court, subject to the following:
With respect to existing life insurance, provided the court is apprised through evidence, stipulation, or otherwise as to level of death benefits, premium, and other relevant data and makes findings relative thereto, the court may allocate death benefits, the right to assign death benefits, or the obligation for future premium payments between the parties as it deems just.” 750 ILCS 5/504(f)(1)
An Illinois divorce court may order a new life insurance policy on a very limited basis and only if the maintenance receiver pays the life insurance premiums.
“To the extent the court determines that its award should be secured, in whole or in part, by new life insurance on the payor’s life, the court may only order:
(i) that the payor cooperate on all appropriate steps for the payee to obtain such new life insurance; and
(ii) that the payee, at his or her sole option and expense, may obtain such new life insurance on the payor’s life up to a maximum level of death benefit coverage, or descending death benefit coverage, as is set by the court, such level not to exceed a reasonable amount in light of the court’s award, with the payee or the payee’s designee being the beneficiary of such life insurance.” 750 ILCS 5/504(f)(ii)
This ordered life insurance policy will effectively guarantee the maintenance for the receiver if the payor dies prematurely before maintenance terminated.
The amount of this life insurance ordered should only be to cover the amount of maintenance or other support that would have been paid had the obligor lived their expected natural life.
“Life insurance is designed to guard against the risk of premature death, not to leave large amounts of money after the death of the parties.” In re Marriage of Walker, 899 NE 2d 1097 – Ill: Appellate Court, 4th Dist. 2008
The death of the payor usually terminates maintenance but if there is a life insurance policy, maintenance may still be paid from the dead ex-spouse’s life insurance.
“Any termination of an obligation for maintenance as a result of the death of the obligor, however, shall be inapplicable to any right of the other party or such other party’s designee to receive a death benefit under such insurance on the obligor’s life.” 750 ILCS 5/510(c)
An Illinois divorce court can even order that an asset be put in a will or a trust for the benefit of the surviving maintenance-receiving spouse.
“[S]ections 503 and 504 [of the Illinois Marriage and Dissolution of Marriage Act] are sufficiently broad to allow the trial court to award a form of security for a maintenance obligation, not necessarily limited to life insurance.” In re Marriage of Walker, 899 NE 2d 1097 – Ill: Appellate Court, 4th Dist. 2008
Conversely, the point of life insurance is to guarantee maintenance should the party die and be unable to pay the maintenance owed. If the party is dies, maintenance is terminated. Life insurance should only pay for any maintenance owed before the death of the party.
A court “order [should] not grant [a maintenance receiver] entitlement to future payments but[, rather, should have] ordered Decedent to maintain the life insurance policy to serve as security to compensate [the maintenance receiver] in the event that Decedent had failed to fulfill his maintenance obligation at the time of his death. Because Decedent had no unpaid maintenance arrearages at the time of his death, the use of the life insurance policy as security to pay for any unpaid amounts was never triggered.” In re Estate of Weber, 2024 IL App (5th) 230588-U
Life Insurance And Child Support
Life insurance can be ordered by an Illinois divorce or parentage court.
“Life insurance to secure support. At the discretion of the court, a child support obligation pursuant to this Section and Sections 510, 513, and 513.5 of this Act may be secured, in whole or in part, by reasonably affordable life insurance on the life of one or both parents on such terms as the parties agree or as the court orders. The court may require such insurance remain in full force and effect until the termination of all obligations of support” 750 ILCS 5/505(a-3)
At the very minimum, life insurance will be set to maintain whatever existing life insurance policies already exist.
“Existing life insurance. The court shall be apprised through evidence, stipulation, or otherwise as to the level, ownership, and type of existing life insurance death benefit coverage available to one or both parents, the cost of the premiums, cost ratings, and escalations and assignment of the policy, if applicable, and all other relevant circumstances. The court shall make findings relative thereto.” 750 ILCS 5/505(a-3)(1)
While the statute does not explicitly state that the existing life insurance shall remain in place…why else would they insist that the court be informed of the existing life insurance policies?
Likewise, an Illinois divorce or parentage court shall be informed of the cost of new life insurance policies for the purpose of possibly ordering the parties to purchase those policies.
“New Life Insurance. The court shall be apprised through evidence, stipulation, or otherwise as to the availability of obtaining reasonably affordable new life insurance. To the extent the court determines that the support obligations should be secured, in whole or in part, by new life insurance on the life of one or both parents, the court may order that one or both parents comply with all requirements to obtain such new life insurance through employment, trade union, fraternal organizations, associations, or individual means.
In determining the level and type of death benefits coverage to be obtained by a parent, the court shall consider access and availability of life insurance to that parent, the cost of the premium, cost ratings, and escalations, if applicable, and all other relevant circumstances.” 750 ILCS 5/505(a-3)(2)
Of course, some people are so wealthy (or will receive an inheritance of some kind) that they don’t need life insurance. Their estate can take of the children without a life insurance policy.
“Other security. If life insurance is unavailable to a parent, the court, in its discretion, or as agreed to by the parties, may order other equitable and reasonable means to secure a child support obligation.” 750 ILCS 5/505(a-3)(2)
Courts can order all sorts of things in the best interests of the child. An Illinois court is likely to order that life insurance be purchased especially if the child is young and the parent’s health is poor or the parent has a dangerous profession.
How Long Does The Obligation To Maintain Life Insurance Last?
The point of life insurance is to ensure support for a child for a particular purpose allowable by the Illinois Marriage And Dissolution Of Marriage Act. Illinois divorce courts can only order life insurance be maintained for the length of the support it was designed to guarantee.
“The court’s order [must] limit the obligation to maintain life insurance to the period in which Husband was obligated to provide child support. [Otherwise,] [w]e would thus conclude that this provision of the order appears to be an unlawful court-ordered inheritance.” In re Marriage of Rogliano, 555 NE 2d 1114 – Ill: Appellate Court, 5th Dist. 1990
For child support, “the term “child” shall include any child under age 18 and any child age 19 or younger who is still attending high school” 750 ILCS 5/505(a)
College expense contributions only cover expenses that “shall [have] incurred no later than the student’s 23rd birthday, except for good cause shown, but in no event later than the child’s 25th birthday” 750 ILCS 5/513(a)
Life insurance policies should not be ordered maintained longer than the obligation.
The exception is that support related to a disabled child can last for the course of the child’s life.
Realistically, most parents gladly agree to take out life insurance policies via an agreed order.
Life insurance policies for the benefit of children expire if the children benefitting are referred to as “minor children” in the Marital Settlement Agreement.
“To determine the intent of the parties as expressed by the language of the contract…the contract should be considered as a whole….Here, the words ‘minor children’ are used…throughout the divorce judgment and incorporated agreement. Since both children were minors at the time of the agreement, the word ‘minor’ was not necessary to modify ‘children’ if it was being used simply to identify the children of the parties…“the use of the words ‘minor children’ throughout the documents means that the related obligations need be performed only for the benefit of children who are in their minority.” In re Schwass, 126 Ill. App. 3d 512, 515 (1984)
If there is no mention of or reference to the children’s age when agreeing to life insurance, the life insurance obligation can last forever.
“[B]ecause the decree referred to the children without mentioning their age, the decree required Terry to maintain the life insurance policy until, if ever, a court expressly modified the [original] decree.” Perkins v. Stuemke, 223 Ill. App. 3d 839 (1992)
What If The Beneficiary To The Life Insurance Policy Is Changed?
If the ex-spouse that is ordered to obtain life insurance decides to simply change the beneficiary, there’s going to be a problem.
If the wrongful beneficiary is discovered before the death of the spouse, the court can order the beneficiary to be changed.
If the wrongful beneficiary is discovered after the death of the spouse, the rightful beneficiary has a claim against the wrongful beneficiary.
“[W]hen a marital settlement agreement requires an insured to maintain life insurance for the benefit of a beneficiary, “that beneficiary has an enforceable equitable right to the proceeds of the insurance policies against any other named beneficiary except one with a superior equitable right.” In re Estate of Tacher, 2024 IL App (1st) 231016 (citations omitted)
Changing life insurance policies and appointing a new beneficiary does not defeat the rightful beneficiary’s interest in the life insurance.
“[T]he mere substitution or replacement of policies does not defeat one’s vested equitable interest.” Schwass By and Through Postillion v. Schwass, 126 Ill. App. 3d 512, 516 (1984)
Whole Life Insurance and Divorce
The life insurance that most people are familiar with is term life insurance. Term life insurance is where you insure your life for a period of time. If you survive the “term” (a period of time determined by the policy) then the policy expires with no benefit to anyone. Term life insurance is very affordable for this reason. The insurance company did not pay anything and the insured is still alive…so everyone is happy.
Whole life insurance has a term of your entire life so there is a guaranteed pay-out. Because of this guaranteed pay-out, whole life insurance has a cash value. Whole life insurance policy has a cash value. Therefore, whole life insurance is an asset which can be allocated during a divorce. Of course, allocating the life insurance policy means that someone also has to keep paying on the policy so the policy keeps its value. The responsibility to maintain life insurance payments can also be allocated by the courts.
“As to any existing policy of life insurance insuring the life of either spouse, or any interest in such policy, that constitutes marital property, whether whole life, term life, group term life, universal life, or other form of life insurance policy, and whether or not the value is ascertainable, the court shall allocate ownership, death benefits or the right to assign death benefits, and the obligation for premium payments, if any, equitably between the parties at the time of the judgment for dissolution or declaration of invalidity of marriage.” 750 ILCS 5/503(b-5)
A “court must…determine the proper value of the…cash surrender value of life insurance” In re Marriage of Schneider, 824 NE 2d 177 – Ill: Supreme Court 2005
What If I Can’t Get Life Insurance?
If you’re in poor health, old, or have some history of dangerous activity, you may not be able to purchase life insurance.
The court will consider the expense or inability to get life insurance before ordering life insurance in an Illinois divorce.
“In determining the maximum level of death benefit coverage, the court shall take into account all relevant facts and circumstances, including the impact on access to life insurance by the maintenance payor.” 750 ILCS 5/504(f)
Of course, the reasons for not being able to get life insurance are deeply personal as they relate to a person’s health. Therefore, an Illinois divorce judge will not discuss them in open court but rather discuss the matter privately in their chambers (referred to as being “in camera“)
If “a court reviews any submitted or proposed application for new insurance on the life of a maintenance payor, the review shall be in camera.” 750 ILCS 5/504(f)
If an Illinois divorce judge is ordering life insurance, you may be excused from buying or renewing life insurance due to the doctrine of impossibility.
“The doctrine of legal impossibility, or impossible performance, excuses performance of a contract only when performance is rendered objectively impossible either because the subject matter is destroyed or by operation of law.” Innovative Modular Solutions v. Hazel Crest School Dist. 152.5, 2012 IL 112052, ¶ 37 (citing YPI 180 N. LaSalle Owner, LLC v. 180 N. LaSalle II, LLC, 403 Ill. App. 3d 1, 7, (2010)).
If the parties entered into an agreement to obtain life insurance, then the burden of obtaining life insurance cannot be dismissed via the doctrine of impossibility unless the situation was completely unforeseeable.
“The doctrine of impossibility of performance requires that the circumstances creating the impossibility were not and could not have been anticipated by the parties, that the party asserting the doctrine did not contribute to the circumstances, and that the party demonstrate that it has tried all practical alternatives available to permit performance.” Illinois American Water Co., 332 Ill. App. 3d at 1106 (citing Farm Credit Bank of St. Louis v. Dorr, 250 Ill. App. 3d 1, (1993)).
Can I Get A Life Insurance Policy Against My Spouse’s Life After The Divorce?
Living with someone during a marriage gives you much insight into their lifestyle. You know how they eat, if they exercise, if they smoke, how long their parents lived. You might be tempted to take out a life insurance policy against your ex-spouse’s life and get a jackpot sooner than the insurance company would expect.
You cannot speculate on the life of another another unless that person owes you something. “Public policy forbids one person who has no interest in the continuance of the life of another from speculating on that life by procuring a policy of insurance.” Colgrove v. Lowe, 343 Ill. 360, 363 (Ill. 1931)
This usually happens when a person revives an old insurance policy against their ex-spouse…probably without telling the insurance company that they are now divorced.
“lllinois law has long required that the procurer of an insurance policy on the life of another must have an insurable interest in the other’s life.” Bajwa v. Metropolitan Life Insurance Co., 333 Ill. App. 3d 558, 567 (Ill. App. Ct. 2002)
An insurable interest is “a real and substantial interest in specific property as will sustain a contract to indemnify the person interested against its loss.” Black’s Law Dictionary (11th ed. 2019)
A child support or maintenance obligation would be an “interest in specific property” that would render an insurance policy on the life of another viable.
But, if your ex-spouse is nice, they can get a life insurance policy against their own life and make you the beneficiary whether there is an insurable interest or not. “[O]ne may insure his own life for the benefit of another having no insurable interest therein” Colgrove v. Lowe, 343 Ill. 360, 363 (Ill. 1931)
We all get older, get sick and die. Sooner or later no one will sell life insurance to the old and/or enfeebled. So, it is completely foreseeable that life insurance may not be available one day.
If you have questions about life insurance and divorce feel free to schedule a free consultation with my Chicago Law Office to learn more about all of your options.
