Life Insurance in Divorce

Divorce can be a complicated process. There are many factors to consider and issues to resolve, including financial issues, parental rights issues, and how marital property is divided in the divorce. If you have life insurance policies, they can also be a factor in your divorce.

Is life insurance considered marital property in Chicago or the Chicagoland area?

Life insurance is included in the marital property divided between the spouses in a divorce. Illinois law states, at 750 ILCS 5/503:

“. . . 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 . . .”

Are term life and whole life policies divided differently in a divorce?

Term life policies pay out death benefits only if the insured person dies. Whole life policies have a cash value that accumulates over time, which policyholders can draw on or borrow against. In equitable distribution of marital assets in a divorce, the cash value of a whole life policy may be divided between the parties or exchanged for another marital asset.

Do divorcing spouses need to change their life insurance beneficiaries?

Whether you and your spouse have term life or whole life insurance, you may need to update your beneficiaries as part of your divorce. Under state law, if a judgment of dissolution of marriage is entered after a spouse is designated as beneficiary on a life insurance policy in force at the time of entry, the designation of that spouse as beneficiary is not effective unless:

  • The divorce decree designates the former spouse as the beneficiary on the policy;
  • The policyholder redesignates the former spouse as beneficiary after the judgment is entered; or
  • The former spouse is designated to receive the life insurance proceeds in trust for the benefit of a child or dependent of either spouse.

Should life insurance on your spouse be included in your divorce?

If your spouse is ordered to pay spousal maintenance (alimony) or child support, you may want to consider asking the court to include a provision in your divorce for taking out a life insurance policy on your spouse. Death benefits from life insurance can help ensure that support payments continue. Your spouse’s support obligations would terminate automatically upon his or her death without such a provision.

Can you name your children as your life insurance beneficiaries?

If you have life insurance, you may want to name your children instead of your spouse as beneficiaries after your divorce. This may not be advisable if your children are minors, under the age of 18. Legally, life insurance companies are prevented from paying out death benefits to minors. If your death came before your children reached the age of majority, the court would appoint a legal guardian to manage the funds, which could tie up the funds for years. Alternatives to consider include:

  • Setting up a trust to receive the payout for the benefit of your children, and naming someone you trust to manage the funds
  • Specifically naming a custodian in the policy to control the funds for the benefit of your children
  • Renaming your former spouse as beneficiary on the policy, if you are sharing custody of and financial responsibility for the children

Beermann LLP in Chicago and the North Shore is the law firm other attorneys go to for divorce. Our talented divorce lawyers have years of experience, an excellent reputation, and a history of achieving top-notch results for our clients.