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That would be considered fraud.
So yes it is illegal.
I am sorry this is not the answer you were hoping for but I can see you likely suspected this already.
Are you saying you are actually paying her a salary and her taxes as if she was working?If that is the case I suggest that you consult with an accountant or lawyer face to face to be sure that you are not getting in over your head without meaning to in terms of income splitting which is not legitimate and this insurance issue.