Life Insurance and Divorce in Illinois: Safeguarding Support and Assets
Navigating life insurance policies during a divorce in Illinois involves unique legal and financial considerations. Life insurance is often purchased to provide financial security for loved ones, but divorce changes the dynamics of who should benefit from this protection. Whether life insurance is intended to support children, cover spousal maintenance (formerly alimony), or secure other financial obligations, understanding Illinois laws around life insurance during and after divorce is essential. This guide covers key points on life insurance beneficiary designations, maintenance security, and how Illinois courts handle these matters in divorce proceedings.
Divorce and Life Insurance Beneficiaries
When a couple divorces, life insurance beneficiary designations may need adjustment. Most spouses no longer wish for their ex to receive a payout upon their death. However, children often remain primary beneficiaries to ensure financial support continues in the event of a parent’s death.
Illinois is an “automatic revocation” state for life insurance, which means that an ex-spouse is automatically removed as a beneficiary after a divorce unless specific steps are taken. The Illinois statute 750 ILCS 5/503(b-5) outlines the exceptions where an ex-spouse can still be the beneficiary:
- If the divorce decree explicitly names the ex-spouse as the beneficiary.
- If the policyholder redesignates the ex-spouse as the beneficiary after the divorce.
- If the ex-spouse is named as trustee or custodian for a child or dependent.
If these conditions are not met, the life insurance proceeds go to the alternate beneficiary or to the insured’s estate if no alternate beneficiary is designated.
Employer-provided life Insurance and Federal ERISA Law
For employer-provided life insurance, federal law under ERISA (Employee Retirement Income Security Act of 1974) preempts state laws. This means that automatic revocation doesn’t apply, and an ex-spouse can remain the beneficiary unless the policyholder takes action to update the beneficiary designation.
Life Insurance as Security for Spousal Maintenance (Alimony)
Illinois courts sometimes require life insurance to secure spousal maintenance payments. This can be ordered in cases where maintenance payments ensure financial support for the former spouse. However, this requirement comes with specific guidelines:
- By Agreement: If both spouses agree, life insurance can be mandated as security for maintenance payments.
- Without Agreement: If the spouses cannot agree, courts can only order that existing life insurance policies be used for maintenance security. Courts can allocate premium payment responsibilities and assign benefits, but they cannot order a new life insurance policy without both parties' consent.
The purpose of requiring life insurance for maintenance is to secure payments if the maintenance-paying spouse passes away before fulfilling the obligation. This policy must match the maintenance amount due, covering only what the recipient would have received had the payor lived a natural lifespan.
Limitations on New Policies
If a maintenance recipient wishes to establish a new life insurance policy on the payor, they must bear the cost themselves. Illinois courts may order cooperation from the maintenance payor, but the recipient must cover the premiums.
Life Insurance and Child Support
Life insurance can also serve as a security measure for child support obligations, which ensures children are financially protected if a parent dies. Illinois law 750 ILCS 5/505(a-3) allows courts to require life insurance to secure child support payments, but several factors are considered:
- Existing Policies: Courts review existing life insurance policies to determine their level, ownership, type, and cost. Illinois law does not explicitly state that existing policies must remain, but courts often require them to secure child support obligations.
- New Policies: Courts may order new life insurance if affordable and accessible, especially if the paying parent’s health or profession poses a risk. When a policy is required, it generally remains in place only as long as the child support obligation continues.
Wealthier parents or those with significant estates may not require life insurance if their assets can support their children’s needs independently. Courts may order other financial safeguards if life insurance is unavailable or unaffordable.
Duration of Life Insurance Obligations for Child and Spousal Support
Life insurance policies ordered as part of a divorce decree typically align with the duration of support obligations:
- Child Support: Ends when children reach 18 or 19 if they are still in high school.
- College Support: Ends by the child’s 23rd birthday (or 25th with just cause).
- Lifetime Support for Disabled Children: Support and corresponding insurance may be required indefinitely.
Handling Beneficiary Changes
A common issue arises if a former spouse changes the life insurance beneficiary against court orders. Illinois law protects the court-designated beneficiary’s interest, even if someone else is named after the divorce. If discovered before the insured’s death, courts can restore the proper beneficiary. After the death, the rightful beneficiary can take legal action to recover the policy proceeds from the wrongfully designated person.
Special Considerations for Whole Life Insurance
Whole life insurance policies differ from term policies in that they accrue cash value and are therefore considered an asset in Illinois divorce proceedings. Courts can allocate ownership and premium payment responsibility between spouses as part of the marital property division. If one spouse retains a whole life policy, its cash value is often calculated as part of the overall asset division.
When Life Insurance Is Unavailable
If health issues, age, or lifestyle factors prevent one spouse from obtaining life insurance, Illinois courts consider this before mandating a policy. The policy may be discussed privately with the judge to respect the individual’s privacy, especially when sensitive health matters are involved. When obtaining life insurance is impossible, Illinois courts may invoke the doctrine of impossibility, excusing the requirement. However, parties must demonstrate that the circumstances preventing coverage were unforeseeable and unavoidable.
Securing Support Without Life Insurance
If life insurance is unfeasible, Illinois courts may seek alternative arrangements, such as assigning assets to secure support obligations. For example, courts may direct that certain estate assets or funds be allocated to meet support needs, providing security without relying on life insurance. This arrangement may occur through a trust, which ensures the intended support for children or ex-spouses in the absence of a life insurance policy.
Post-Divorce Life Insurance: Speculation Prohibited
In Illinois, individuals cannot take out life insurance on another person unless they have a legitimate “insurable interest,” like child support obligations. This policy prevents “speculation” on someone’s life without a financial stake in it. However, a parent or former spouse with legal obligations to a child or dependent ex-spouse has a valid insurable interest.
Protecting Your Financial Future with Life Insurance
Divorce can bring complex financial issues, particularly when it comes to securing the future of children and ex-spouses. Understanding Illinois law on life insurance is key to making informed choices that support your loved ones, minimize disputes, and meet court requirements. Working with a knowledgeable Illinois divorce attorney ensures that your interests are protected and that life insurance arrangements align with your family’s needs.
If you’re navigating a divorce or need guidance on life insurance provisions for support, contact our Chicago office for a consultation. Our team at O. Long Law, LLC is here to support you through every stage of this process.
