The Use Of Divorces In Medicaid Planning
It is no secret that the cost of long term care in the United States is higher than most Americans can afford. The average cost of nursing home care in New York is over $11,000 a month, and home care (the cost of a home health aide/home attendant) averages approximately $20 an hour (2013 figures). Medicare, the health care insurance for all American seniors, only covers short term-acute care, not long term care. It follows that unless you are wealthy enough, or savvy enough to have purchased long term care insurance while relatively young and healthy, all of your wealth can be drained by medical costs until you become impoverished. The solution to this dilemma for many becomes to plan for Medicaid; and sometimes, planning for Medicaid can entail divorcing a cherished spouse.
Medicaid eligibility is based on your income and resources. In sum, planning for Medicaid is the process of transferring resources and income in order to preserve as much as possible for your loved ones instead of spending all of your savings and resources on Medical expenses to then become eligible for Medicaid. It is also important to note that planning should be done at least five years before the anticipated need because there is a five year "lookback" for all transfers/gifts should a person require nursing home care. (You should also be aware that there is currently proposed legislation to increase the lookback period to ten years.) Presently, there is no transfer penalty for those receiving care at home.
When transferring assets, the well spouse — the spouse not in need of long term care — is able to keep much of the resources and income of the institutionalized spouse. The well spouse must sign what's called a "spousal refusal" — a document that pronounces the refusal of the well spouse to support their institutionalized partner. The government allows for this in order to maintain the lifestyle of the spouse living at home. However, the well spouse is only entitled to a specific amount of monthly income and can only keep a limited amount of resources; therefore not all of the assets and income are preserved. Some couples opt for a divorce so that the well spouse keeps potentially more of the resources and income. But not only is this morally challenging for many, it may not be entirely effective in sheltering the assets from Medicaid because of equitable distribution, a process a divorcing judge uses in deciding how to split the property of married couples. In many cases it may prove difficult to convince the judge that the well spouse should be entitled to all or even most of the marital property (marital property is all property that is acquired during the marriage).
In some cases getting divorced may factor even into the decision of those living at home but needing Medicaid for home care. For example, if one spouse has several properties in his name alone and/or is still working while the other is retired, the retired spouse would not qualify for Medicaid on his own because Medicaid determines eligibility based on their combined income and resources. While a couple in this situation may still plan for Medicaid together (meaning transfer the wealthier spouse's assets and shelter the excess income via the use of a trust), and have the retired spouse be the only one to receive Medicaid, for some this process may be more complicated and costly than getting a divorce.
You may ask, isn't this a sham? Isn't divorcing a spouse solely to become eligible for Medicaid fraud? People get married and divorced for many reasons. Sometimes the reasons behind these life-altering decisions are financially motivated. And, despite our moral hesitation, it's all legal and it has been done as a Medicaid planning technique for decades. Some even argue that the system encourages divorce because there is no long term care coverage through Medicare or other government programs.
On the other hand, there are many drawbacks. For one, divorcing a spouse of many years can be much more than a simple financial decision. The well spouse may feel that he or she is deserting a beloved spouse and may experience shame because of the public nature of divorce proceedings. As already mentioned, there is also the risk that the judge may not apportion the assets according to the couple's agreement, or more favorably than Medicaid's allowance for the well spouse.
You may be curious about the impact prenuptial or post-nuptial agreements have on Medicaid eligibility. Where there is a pre-marital or post-marital agreement to divide assets in a certain way, Medicaid will not honor it unless that agency was a party to the agreement (meaning, Medicaid signs the agreement as well). Of course, Medicaid would never become a party to any such agreement so in effect they are all wholly ineffective for the purposes of Medicaid eligibility.
Planning for Medicaid is complicated and should not be delayed. Contact my office and receive the help and information you deserve.