The Journal of The DuPage County Bar Association

Back Issues > Vol. 24 (2011-12)

A Requirement of Life Insurance to Secure a Maintenance Award Allowable Under New Law
By Victoria C. Kelly and Leah D. Setzen

Can a client’s maintenance award be secured by life insurance policy, in order to ensure that a spouse receiving maintenance obtains the full benefit of the maintenance obligation?   Public Act 097-0608, effective January 1, 2012, amended four sections of the Illinois Marriage and Dissolution of Marriage Act (“IMDMA”) to, among other things, allow a court to require a party to obtain or maintain life insurance to secure an aware of maintenance. This article will first look how the case law developed before the PA 097-0608 and then discuss the changes under the new law.

Background. Several appellate court rulings highlight the varying past interpretations of the Illinois Marriage and Dissolution of Marriage Act (“IMDMA”) as to the issue of ordering life insurance as security for support payments.  In the Third District case of In Re the Marriage of Ellinger, the appellate court found the trial court lacked authority under the IMDMA to order a party to obtain life insurance to secure a maintenance obligation.[1] In Ellinger, the trial court required husband to pay wife monthly maintenance and the court ordered that he maintain her as the sole beneficiary of his life insurance policy for so long as he shall have an obligation to pay her maintenance.[2]  On appeal, the Third District observed that while Section 504 of the IMDMA authorizes a trial court to order one spouse to pay maintenance to another spouse, neither that section nor any other section of the Act explicitly provides that a court may order the spouse paying maintenance to designate the recipient spouse as the beneficiary of a life insurance policy as security for the maintenance payment.[3] 

In further support of its opinion that the IMDMA dId. not allow courts discretion in securing support payments through life insurance, the Third District looked at the differences in language between maintenance termination in Section 5/510(c) of the Act versus the termination of child support under Section 510(d).  Section 510(c) states, “Unless otherwise agreed by the parties in a written agreement set forth in the judgment or otherwise approved by the court, the obligation to pay future maintenance is terminated by the death of either party.”[4]  In contrast, Section 510(d) provides, “provisions for the support of a child are” not terminated “by the death of a parent obligated support or educate the child.”[5]  Based upon these and other differences in language under the Act as to the treatment of child support payments compared to maintenance payments, the appellate court found that the trial court erred as a matter of law by analogizing the use of life insurance to secure child support payments with its use to secure maintenance payments. 

Further, in In re the Marriage of Clarke, a Fourth District case, [6] the court held that a court does not have authority to order a spouse or the estate of a spouse to make maintenance payments for a period extending beyond the death of that spouse or to require that spouse to secure his maintenance obligation to the other spouse after his death.[7] The Clarke court observed that when the IMDMA was enacted, it replaced earlier legislation that gave a trial court discretion to designate life insurance as security for maintenance obligations.[8]  The appellate court reasoned that the omission of such a provision in the Act demonstrated the intent of the legislature to change the law in this regard.

However, years later, the Fourth District again addressed the issue of providing security for maintenance obligations in In Re the Marriage of Vernon.[9] In the Vernon case, the trial court held that that husband was to pay maintenance to wife and ordered him to keep his wife as a beneficiary on his life insurance policy.[10] On appeal, husband argued that the court improperly ordered him to maintain his wife as beneficiary on his life insurance policy.[11] The Fourth District questioned the holding in Clarke, relying on the IMDMA’s own direction that the Act be “liberally construed” to make reasonable provisions for spouses and children. 

The Fourth District’s evolving interpretation of the IMDMA with respect to life insurance as security for maintenance payments culminated in In Re the Marriage of Walker,[12]  which created an official split between the Third and Fourth District and laId. the groundwork for the new amendments to the Act contained in Public Act 097-0608. In Walker, the court ordered husband to maintain life insurance naming wife as the sole beneficiary to secure the award of maintenance.[13] On appeal, husband argued that the trial court erred in requiring him to maintain a policy of insurance to secure the maintenance payment in the event of his death.[14]

In abrogating its prior holdings, the Fourth District in Walker stated that while the Act does not contain language specifically authorizing a trial court to order security for maintenance, the legislature dId. not specifically prohibit such an order.[15] The Walker court also determined that ordering a life insurance policy as security for maintenance does not equate to payment after death but rather is a guard against premature death and therefore, the court would not presume that the trial court violated the Act’s requirement that the obligation to terminate maintenance terminate upon the death of either party.[16]  The First, Second, and Fifth Districts also held similarly with respect to ordering life insurance to secure a maintenance obligation.

New Law. Public Act 097-0608, which took effect January 1, 2012, amended four sections of the Illinois Marriage and Dissolution of Marriage Act (“IMDMA”):  Section 503 - Disposition of property; Section 504 - Maintenance; Section 505 - Child support; and Section 510 - Modification and termination of provisions for maintenance, support, educational expenses, and property disposition.   The amendments now provide that a maintenance award ordered by a court may be secured by an existing or new policy of life insurance, and, if applicable, that a judgment for dissolution of marriage shall expressly set forth that payments for such insurance are excludable under the Internal Revenue Code from the gross income of the maintenance payee.[17]

Although courts now have discretion to secure an award of maintenance with a life insurance policy, this authority is subject to certain limitations. With respect to existing life insurance, provided that the court has sufficient evidence and makes relative findings, the court may allocate death benefits, the right to assign death benefits or the obligation for future premium payments between the parties.[18]  The court also has the discretion to order a new life insurance policy to be obtained to secure maintenance. However, if the court orders a new life insurance policy, the payor spouse need only cooperate on all appropriate steps for the payee spouse to obtain the policy of life insurance; the payee spouse would be responsible for the payment of saId. premiums.[19]  Additionally, if an issue needs to be resolved with respect to the death benefit coverage, the proposed life insurance application for new insurance shall be reviewed in camera so as to protect the privacy of the obligor.[20]

The final new amendment to 750 ILCS 5/504(f) is that unless otherwise stipulated, the death benefits paId. under the life insurance obtained to secure maintenance under Section 504(f) of the IMDMA are excludable from the gross income of the payee under Section 71(b)(1)(B) of the Internal Revenue Code.[21] This provision allows the court to secure an award of maintenance upon the death of the payor notwithstanding the fact that maintenance terminates upon the death of the payor or payee.[22] Therefore, practitioners must be aware that when dealing with life insurance to secure a maintenance obligation, that a final judgment specifically states the aforementioned provision unless the parties agree otherwise.

Further, this new provision has implications for child support.   Section 505 of the IMDMA has also been amended to mirror new Section 504(f)(3) and now allows premiums paId. for life insurance to secure child support, maintenance, or educational expenses for a non-minor child, to be deducted prior to calculating net income for child support purposes.[23]  This is important for family law practitioners, who must explain to clients that securing any support obligations with life insurance means those premium amounts will be deducted from the payor’s gross income prior to determining his or her net income for child support purposes.  Therefore, like health insurance premiums, life insurance premiums must be taken into account when determining the actual amount of child support that the obligor shall pay.

Conclusion. Just as Section 510 of the IMDMA provides certain termination events for the payment of maintenance, that section has been amended to now provide that upon the death of either party or remarriage of the party receiving maintenance, any obligation to maintain life insurance terminates as well.[24]  So accordingly, while the death benefit will not be affected, an estate of a deceased payor will not be obligation to maintain the insurance policy beyond the death of the payor.  These changes require the family law attorney to be mindful of proper settlement of a case or proper drafting following a trial where maintenance is awarded or otherwise addressed.

[1]               In re Marriage of Ellinger, 378 Ill.App.3d 497, 882 N.E.2d 692 (3d Dist. 2008)

[2]               Id. at 498, 882 N.E.2d at 813.

[3]               Id. at 500, 882 N.E.2d at 814.

[4]               750 ILCS 5/510(c)

[5]               750 ILCS 5/510(d)

[6]               In re the Marriage of Clarke, 125 Ill.App.3d 432, 465 N.E.2d 975 (4thd D 1984)

[7]               Id. at 434, 465 N.E. 2d 975 at 976.

[8]               Clarke, at 437, 465 N.E.2d 975 at 978.

[9]               In Re the Marriage of Vernon, 253 Ill.App.3d 783, 625 N.E.2d 823

[10]             Id. at784, 625 N.E.2 at 825.

[11]             Id. at 788, 625 N.E.2 at 827.

[12]             In re Marriage of Walker, 386 Ill.App.3d 1034, 899 N.E.2d 1097 (4th Dist. 2008)

[13]             Walker, at 1036, 899 N.E.2d 1097 at 1099.

[14]             Id. at 1045, 899 N.E.2d at 1106.

[15]             Id. at 1046, 899 N.E.2d at 1107

[16]             Id. at 1047, 899 N.E.2d at 1108.

[17]             750 ILCS 5/504(f).

[18]             750 ILCS 5/504(f)(1)

[19]             750 ILCS 5/504(f)(2)

[20]             Id.

[21]             750 ILCS 5/504(f)(3).  This article does not comment on, nor make any references to, the Internal Revenue Code, or any issues that may arise from this provision.

[22]             Id.

[23]             750 ILCS 5/505(f)

[24]             750 ILCS 5/510(c)

Leah D. Setzen is an associate with the family law firm of Grunyk & Associates, P.C. in Naperville, Illinois. She received her Bachelor of Arts Degree in Summa cum laude and Phi Beta Kappa from the University of Illinois in 1997, and her Juris Doctorate from the University of Illinois in 2000, where she graduated cum laude. Ms. Setzen is a member of the DuPage County bar Association, where she co-authors the Family Law Section's Case Updates, and the Will County Bar Association.

Victoria C. Kelly is an associate with the family law firm of Grunyk & Associates, P.C. in Naperville, Illinois. She received her Bachelor of Science Degree in Summa cum laude from the Quincy University in 2005, and her Juris Doctorate from Northern Illinois University in 2008. Ms. Kelly is a member of the DuPage County Bar Association, where she co-authors the Family Law Section’s Case Updates, and the Will County Bar Association.

 
 
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