Medicaid Divorce: Is it a Viable Planning Option?

7 Comments

Under the Medicaid rules for married couples, the spouse residing in the community may only protect up to $119,220 in cash and other countable assets (the house, car, personal property, etc., is exempt and is in addition to this number). The spouse in the nursing home can protect up to $2,000. So what if a couple has more than $121,220 in countable assets? In that case, should the nursing home spouse apply for Medicaid, he or she will be told they have excess resources and must first “spend down” their assets and then re-apply for Medicaid.

It is the effect of these rules that sometimes drives couples to consider a divorce, not because they no longer love each other but purely for financial reasons. For example, if the spouse at home has investments of $500,000, the other spouse will not qualify for Medicaid until the at-home spouse’s assets are spent down at least to $119,220. But that could leave such spouse at risk for running out of money themselves, over time. In other words, Medicaid forces the couple to divest themselves of a lifelong accumulation of assets that they had planned to use for their final years or even pass on to their children or grandchildren.

Without debating whether it is ethical for a couple to try to keep more than the Medicaid rules allow—by legal means, of course—as a practical matter there are various options available. One such option is that of a divorce. The reason is clear: once the couple is divorced, their assets are counted separately and neither former spouse will be required to contribute to the care expenses of the other.

However, it is important to note that the division of property by the divorce court judge must be “fair and equitable” or the Medicaid department will re-allocate assets as they see fit, to more correctly reflect a “fair and equitable” division.

For example, if the nursing home spouse says to the at-home spouse, “Look, I’m going to be in the nursing home for the rest of my life and don’t need much money. Besides, Medicaid will cover my expenses. So you can keep most of the assets, and then leave them to our kids in your will.” But if a “fair and equitable” division of the assets really would be 50/50, then whatever portion of the couple’s assets in excess of 50% that is awarded to the at-home spouse will be deemed a gift from the nursing home spouse to the at-home spouse, causing a long period of disqualification from Medicaid.

As an estate planning and elder law attorney I have had to deal with this situation a few times, and I always worked with a divorce lawyer since that was not my area of expertise. But I was sure to educate the divorce lawyer about the Medicaid rules so that he would not be too aggressive in his division of assets between the spouses.

Indeed, there may be good reasons for awarding more of the assets to the at-home spouse, such as high medical costs, need for in-home care, perhaps even a disabled child living with that spouse. But be careful in being too greedy and overloading the share of the at-home spouse with more assets than you can reasonably justify to the Medicaid department when the time comes to apply.

K. Gabriel Heiser is an attorney with over 25 years of experience in elder law and estate planning. He is the author of "How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets," an annually updated practical guide for the layperson.

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7 Comments

Well, I have no dog in the fight concering the issue of divorce...Ain't gonna happen with me and Medicaid (since 2009) wife...I would like to comment on the $119,000 allowance for the community spouse, however. Beware: if all assets except $2000 are put into community spouse's name, AND if the community spouse spends down to $119,000, and then the afflicted spouse applies for Medicaid, the "spenddown" process will only allow the community spouse to keep HALF of the $119,000. Thus, the community spouse should be aware that once assets are down to, or close to, $238,000, that is the time to apply..

Secondly, there is a device called the "Medicaid compliant annuity" which the community could buy and shield the money. That is what I did in 2009 and I was able to "keep" and additional $60,000 on top of the community spouse allowance..totally legal...I have no connection but used a firm headed by Dale Krause (google it if interested) for more info.

Third: many lawyers in my personal experience have not clue as to how current Mecaid law and spendown works....If some one tells you they will "divide the money" and when the afflicted spouse's half is spent down, the half of the community spouse is protected, then RUN.

Grace + Peace,
Bob
Given that most elderly have much less than 100,000.00 in non-home assets, I consider saving this money for your kids to be fraud. On the other hand, sending everyone to poverty is not an answer either. What we need is free, high quality healthcare for everyone. And the wealthy should not be exempt from medicare withholding.
One benefit of marriage is to afford at least some security to both. If Medicaid requires CS to give up what's needed for survival and CS is deprived of spouse's love and care, and snf spouse is unhappy that CS is also suffering, I'm hard pressed to agree marriage is beneficial to either. That said, I don't understand how equitable decisions can be made by the court if the state is allowed to contribute it's 2-cents worth to Medicaid divorce proceedings. Medicaid is like the fox guarding the chickens. If CS is allowed to visit institutionalized spouse after a Medicaid Divorce, maybe that needs to be considered. The article is very good in that it makes the point of educating the divorce attorney as to the relevant Medicaid rules for assets to be left to cs. I've noticed no matter what any parties do, the bill can not possibly be repaid if the nursing home stay extends for too many months. Home equity, other assets just can't possibly keep pace with 5500.00/mo bill. Add estate recovery onto that and no parties are ever compensated for the expense plus there is now one more party thrown into the rabbit hole because he/she was not allowed to keep resources that would have been a means for support. So divorce should be on the table as an option.