How are Life Insurance Benefits Divided in a Divorce?

Divorce is complicated. Separating couples need to be prepared to divide all of their assets and liabilities, including complex assets like life insurance benefits. This raises an important question: How are life insurance benefits divided in a divorce? In Illinois, the answer is that the court will use the state’s equitable distribution standard to determine the appropriate division. Here, our Chicago divorce lawyer provides a more detailed explanation of the key things that you should know about the division of life insurance benefits in a divorce in Illinois. 

Starting Point: Illinois is an Equitable Distribution State

Illinois is an equitable distribution jurisdiction. Under Illinois law (750 ILCS 5/503), the totality of a divorcing couple’s marital assets must be divided in an equitable manner. For the purposes of the law, equitable means “fair”—it may or may not mean an equal split. All of a married couple’s marital assets are subject to equitable distribution. 

A life insurance policy may or may not be deemed a marital asset. As simply described by Investopedia, life insurance is “a contract between an insurer and a policy owner.” Whether or not that contract is classified as a marital asset in Illinois depends on a number of different factors, including the type of life insurance, how the policy was paid for, and when it was taken out. 

Key Distinction: Term Life Insurance vs. Life Insurance Policy With Cash Value

Life insurance is complicated. There are many different types of policies available. For the purposes of life insurance and divorce in Illinois, there is an important distinction to make between term life insurance and a life insurance policy with a cash value. 

Term life insurance is the purest and most straightforward form of life insurance. Payments are made and financial benefits are to beneficiaries if the policyholder passes away. Term life insurance is generally considered to be a separate asset in Illinois. The policyholder may simply be able to change their beneficiary after the divorce. 

In contrast, a life insurance policy with an actual cash value is a more complex financial asset. With this type of policy, a portion of each payment goes to the life insurance premium and another portion goes towards building cash value. These policies are frequently deemed to be marital assets in divorce in Illinois—at least the cash value portion may be a marital asset.

Speak to a Divorce Lawyer in Illinois

At the Law Office of Demetrios N. Dalmares & Associates, Ltd, our Chicago divorce attorney is devoted to protecting the best interests of clients. If you have any specific questions or concerns about the division of life insurance benefits in a divorce, we can help. Contact us now to set up your fully private initial appointment with a lawyer. We provide family and divorce representation throughout the entirety of the Chicago metropolitan area.