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.