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Life Insurance and Divorce in Illinois
Life insurance is an insurance against a person’s life in that it pays out money upon the death of the person. People typically purchase life insurance to support their family if, God forbid, they are no longer able to support their family due to death.
What happens if you get divorced? You probably no longer want your husband or wife 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.
“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, or, if they do not agree, on such terms determined by the court, subject to the following: (1) 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)
In Illinois, life insurance benefits do not automatically no longer 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 and that will be held to 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).
If your life insurance is through your work, it’s likely that your life insurance is 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 manually change it 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)
The court can also order a new life insurance policy if the court ordered maintenance (formerly known as alimony). This life insurance policy will effectively guarantee the maintenance for the receiver if the payor dies before maintenance terminated.
“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. 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. If in resolving any issues under paragraph (2) of this subsection (f) 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)
Maintenance is usually terminated by the death of the payor but if there’s life insurance, maintenance will still be paid from that 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)
Life Insurance And Child Support
Can the court order life insurance to guarantee child support?
There is no Illinois statute saying that the court can secure child support with life insurance the same way maintenance can be secured with life insurance. There used to be a provision in the statute that allowed for life insurance to guarantee child support but it was stricken by the legislature.
Still, courts can order all sorts of things in the best interests of the child so a court is likely to order that life insurance be purchased if the child is young and the parent’s health is poor or that parent has a dangerous profession.
Whole Life Insurance and Divorce
Most life insurance that 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 period of time then the policy goes away. Term life insurance is very affordable for this reason.
Whole life insurance has a term of your entire life so there is a guaranteed pay out. Because of this, whole life insurance has a cash value. Because a whole life insurance policy has a cash value it 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. This 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)
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.
In such a case, 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)).
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.
For great information about life insurance in Chicago, I strongly recommend talking with Frank Devincentis. Frank’s office is just one mile my office. Directions below: