It's sad enough when one spouse enters a nursing home for long-term care. Compounding this difficult situation is the financial devastation that can result from the high costs of nursing home care. Some couples resort to a so-called Medicaid divorce, which involves ending the marriage to preserve marital assets for the healthy spouse. While Medicaid is a state and federal program, divorce provisions depend on state law.
Although a divorce for Medicaid qualification purposes is a dissolution of the marriage, it's also an estate planning tool. To qualify for Medicaid to pay for nursing home expenses, a couple must "spend down" their assets until they have only the minimal "countable" assets allowing for Medicaid eligibility. Such assets don't include your house, one car and furniture, but do include non-residential property, financial assets, retirement plans, boats and additional vehicles.
It's not simply a question of transferring assets to family members; most states include a "look-back" period of several years and disqualify transfers made primarily so these assets can't be included for Medicaid eligibility. You can legally spend down assets by paying off medical bills, a mortgage, credit cards and other loans. You can also prepay funeral expenses, make repairs and home improvements; buy a new car for the healthy spouse or purchase a new home within the exemption limits.
Medicaid's spousal impoverishment provisions protect some of the couple's combined assets and resources to prevent the healthy spouse (also known as the community spouse) from falling into poverty. The well spouse can keep only a certain amount of money and assets without affecting the incapacitated spouse's Medicaid eligibility.
At the time of publication, the minimum monthly maintenance-needs allowance for the well spouse in 48 states is $2,113.75 , and the total cannot exceed $3,216 in any state. In Alaska and Hawaii, the minimum is $2,641.25 and $2,432.50 , respectively. The well spouse can keep resources valued at up to $128,640, not including home equity of up to $893,000, before these amounts affect the unwell spouse's Medicaid eligibility.
Under Medicaid regulations, you can't transfer assets to other family members or sell them for less than fair market value to meet eligibility requirements.
Medicaid divorces still require equitable distribution in non-community property states. That is, it's not a case of granting all or most of the couple's assets to the well spouse so that the incapacitated spouse is now impoverished and eligible for Medicaid. Family laws in each state will determine how property must be divided, even in a Medicaid divorce.
Read More: Federal Medicaid Divorce Laws
Divorce and Benefits
A Medicaid divorce might preserve additional assets for the well spouse, but it can affect her eligibility for other benefits. That includes the amount received for Supplemental Security Income. It also impacts the ability to receive survivor's benefits for Social Security retirement income if the couple was married less than 10 years and the unwell spouse had the higher income; if he was a veteran, the well spouse may no longer receive a pension or death benefit.
- Comstock Images/Stockbyte/Getty Images