Many couples considering long-term planning options come to the realization that, together, they make too much per month or have too many assets to qualify for nursing home benefits. The “Medicaid divorce” is a planning tool that helps reduce the overall amount of assets a couple has to their name, thereby helping each spouse qualify for Medicaid without losing their entire life savings or investment properties. Many spouses choose to discuss this option with an elder law attorney before proceeding with the Medicaid divorce.
Currently, Medicare does not cover the costs of long-term care, and Medicaid assistance is necessary for many families who cannot afford the staggering costs of a nursing home. If you are in this situation, you may have already discovered that Medicaid eligibility is based on household income and assets. The laws require families to “spend down” their assets to the point of poverty before Medicaid assistance becomes available, leading many spouses to consider the “Medicaid divorce” as an option for avoiding the necessity of impoverishing one spouse while the other receives nursing care.
How Medicaid Views Married Couples’ Assets
For one person to qualify for long-term care using Medicaid benefits, he must be in severe financial need. The qualifying spouse can only have $2,000 in countable assets, as of 2014, in order to qualify for Medicaid. Countable assets include accounts and investments, but not your primary residence or vehicle. While all states allow a community spouse (the spouse not in need of benefits) to retain certain extra income per month and reside in the marital home, the assets of both will be counted to determine eligibility at the outset. For instance, as of 2014, the community spouse is permitted just $581.63 in monthly housing expenses and may receive no more than $2,931 in income before these assets must be turned over to pay for long-term care expenses.
How a Medicaid Divorce can Help
If an applicant for Medicaid is unmarried at the time of application, his eligibility is evaluated on his assets alone. If a couple opts for a Medicaid divorce, the spouse in need of care would likely offer nearly all of the marital property to his spouse in the divorce settlement, thereby allowing her to retain the majority of their earned assets without having to report these assets in the Medicaid application. For example, a Medicaid applicant may opt for a property distribution of 80/20 in favor of the community spouse. If the spouse in need of care offers alimony to the community spouse, this will further reduce his monthly income, thereby raising his eligibility for long-term care benefits.
Impact on Other Benefits
The Medicaid divorce can also impact eligibility for other benefits received by one or both spouses. For example, couples receiving need-based Supplemental Security Income benefits who decide to divorce may experience a change in the monthly benefit amount due to the termination of their “eligible couple” status. In the context of a Medicaid divorce in which the community spouse retains a large majority of the marital assets, it is possible that spouse could experience a reduction or elimination of benefits after the transfer of marital property. A Medicaid divorce could also impact the community spouse’s receipt of Social Security retirement benefits if the spouse in need of long-term care was the earning spouse.
- Jupiterimages/Stockbyte/Getty Images