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Sometimes a life insurance policy may be the most valuable asset in an Illinois divorce.
At my Illinois divorce, I will be asking the judge to order my husband to pay maintenance to me, and to make me the beneficiary of his life insurance. I want ensure that the maintenance is paid.
I understand that my husband will be able to deduct his maintenance payments, paid to me, from his income taxes. In additional, I will have to report the maintenance payments I receive as income on my federal and Illinois state income tax returns.
I am concerned, however, that my soon-to-be ex-husband may pass away while he is still obligated to pay me maintenance. Then, I will receive the proceeds of his life insurance. If that happens, must I report the life insurance proceeds as income on my federal and Illinois income tax returns since the proceeds are for maintenance payments and the maintenance payments themselves are income taxable to me?
Simply put: Will I have to pay income taxes on the life insurance proceeds as "maintenance payments"?
The 2012 amendment, 750 ILCS 5/504(f), passed by the legislature of Illinois to the Illinois Marriage and Dissolution of Marriage Act (IMDMA), now requires that your Judgment for Dissolution of Marriage state the following:
(3) A judgment shall expressly set forth that all death benefits paid under life insurance on a payor's life maintained or obtained pursuant to this subsection to secure maintenance are designated as excludable from the gross income of the maintenance payee under Section 71(b)(1)(B) of the Internal Revenue Code, unless an agreement or stipulation of the parties otherwise provides. 750 ILCS 5/504(f)
If you have this language in your Judgment, then the life insurance proceeds are excluded from your income taxes.
Therefore, the answer is to make sure that your divorce lawyer follows the new 2012 amendment and writes this language specifically into your Judgment for Dissolution of Marriage. If you are already divorced, ask your divorce lawyer to file a petition requesting that the divorce judge amend your existing Judgment for Dissolution of Marriage and add this language.
As you can see, even a simple provision, like a life insurance provision in a marital settlement agreement to guarantee maintenance, is not simple. That is why our attorneys at Martoccio & Martoccio are highly skilled and experienced in dealing with all of the provisions of marital settlement agreements in order to get the best possible deal for you.
Contact the Law Office of Martoccio & Martoccio TodayIf you are considering filing for divorce, please contact the experienced DuPage County divorce attorneys at the Law Office of Martoccio & Martoccio. We are here to advise you and look out for your best interests. Call us today at 630-920-8855 to schedule your free consultation.