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.
“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 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).
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 in regards to 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, 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)
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 before maintenance terminated.
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.
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 (this is 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 hell bent on 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 a lot of 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 really nice, your ex-spouse 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.
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:
