Life Insurance and Divorce
Divorces can be tumultuous and confusing, especially when it comes to navigating the realm of dividing assets and defining how assets – like a life insurance policy – will affect your final divorce outcome. In the past, life insurance could be used to secure both maintenance paid to a former spouse and support paid on behalf of a minor child(ren). Now, however, Illinois law has changed how life insurance comes into play in your divorce case.
What is the Difference Between Whole Life Insurance and Term Life Insurance?
First, it is crucial to understand the difference between a whole life insurance policy and a term life insurance policy. Don’t worry, it’s ok to be confused – that’s what we’re here for! There are a few distinct differences between whole life insurance and term life insurance. For instance, the aptly-named term life insurance policy provides coverage over a fixed term – typically 10, 20, or 30 years. Thus, if you do not pass away during the fixed term, your coverage will end, and no one will receive the monetary benefit of your policy. In contrast, whole life insurance, or, rather, “permanent” life insurance, provides coverage until you die. Whole life insurance policies also have a cash value that you are able to utilize during your lifetime. While both whole and term life insurance policies can be used to secure maintenance – more on that later – only a whole life insurance policy is considered a marital asset that can be divided at the time of divorce.
What Role Does Life Insurance Play in Divorce?
Life insurance comes into play in a divorce case in 3 ways:
- as a marital asset subject to division at the time of divorce (as stated above);
- as a mechanism to secure maintenance; and
- as a mechanism to secure child support.
The Marriage and Dissolution of Marriage Act (the -Illinois Divorce Law) no longer requires life insurance to secure child support. Nonetheless, the court may still order one or both parents to obtain or maintain a life insurance policy if the court finds it to be in the best interests of the child(ren) – say, for instance, you and/or your spouse are in poor health but have a young child.
Now, you may be asking yourself what “secure” means in terms of Illinois Divorce Law and maintenance. “Secure” essentially means “guarantee” – meaning, the court can use life insurance as a mechanism to “guarantee” that a spouse will receive maintenance throughout the duration of the maintenance term, even if the paying spouse dies before such term ends. The court can utilize a spouse’s life insurance policy to “guarantee” maintenance in a couple of different ways. Firstly, in cases where maintenance is reserved, the court may use the paying spouse’s life insurance policy to secure a future award of maintenance on terms that are agreed to between the spouses. If the spouses are unable to agree on such terms, then the court may allocate death benefits, the right to assign death benefits, or the obligation for future premium payments between the parties Secondly, the court, in very limited circumstances, may order a new life insurance policy on the paying spouse’s life – provided, however, that the payee spouse (the spouse receiving the maintenance award) pays the life insurance premiums.
Finally, remember that while both term life insurance policies and whole life insurance policies can be used to secure maintenance, only the cash value of whole life insurance policies are subject to division at the time of divorce.
Get Help Determining How Your Life Insurance Policy May Impact Your Divorce.
Keeping up with the constantly evolving ins and outs of Illinois Divorce Law can be daunting and seemingly impossible. However, the well-versed and experienced team at Conniff & Keleher, LLC is here to help you. Our office can help you navigate even the most challenging aspects of your divorce. Contact Conniff & Keleher, LLC to learn more.