People will do just about anything to try to get out of a bad situation. Mainly, finding themselves in desperate straights because they either did not heed the advance warnings, or they just refused to spend the time or money up front to take care of business. So here’s the warning: You need to plan for how you’ll handle a long-term-care event before it happens. The time commitment is speaking to a knowledgeable professional who can give you the real skinny (not reading one or two internet articles and thinking you understand it all), then, making an informed decision about whether you will rely on the system as it is designed or pay the modest costs required for some advanced planning, funding and protection.
Or, just wait ’till it’s too late, then consider a Medicaid Divorce as a last-ditch effort. I’ll explain why that might not be a good idea and how to better protect yourself.
In a Huffington Post article from a few years ago discussing Medicaid qualifications they use the headline “Is Divorce The Best Option For Older Americans.” In a more recent article posted January 6, 2022, the American Council on Aging ran an article using the headline “Should You Consider a Medicaid Divorce When One Spouse Requires Care And One Does Not,” thus the idea of the Medicaid Divorce.
First, what is a Medicaid divorce? Well, the concept is fairly simple. Because under Medicaid eligibility rules, all of the assets of a married couple are subject to the spend-down, meaning they’re required to be used for care until Medicaid eligibility levels are reached, the idea is if they were to divorce and move all of the assets into the healthy spouse’s name, the assets would not be required to be used to pay for the institutionalized spouse’s care costs, and they would instantly be eligible for Medicaid.
Here’s the story from the American Council on Aging website that explains exactly what the Medicaid divorce is all about:
“Joan and Harry were childhood sweethearts and have been happily married for 55 years. However, several years ago, Harry was diagnosed with Alzheimer’s disease. Despite Joan’s devotion and care, the disease’s progressing and soon Harry will need to relocate to a memory care unit or more extensive long term care. After the death of Joan’s father, she received a hefty inheritance and wisely invested it. Although, with the significant cost of Alzheimer’s care, the money would be spent fairly quickly. On much reflection and a feeling of deserting her husband after a promise to love him in sickness and in health, Joan has come to the revelation that divorcing Harry “on paper” is the only way to preserve her assets for herself and as an inheritance for their children.”
What is a Medicaid Divorce? Very simply stated, a Medicaid Divorce is the dissolution of a marriage in which one spouse requires long term care Medicaid, purely for the purpose of avoiding spending down the assets that would be required to pay for the ill spouse’s long term care. Interestingly, this particular article on the American Council on Aging website is rife with somewhat misleading generalizations, inaccuracies, and even typographical errors that alter the meaning of the sentence in which the errors appear. They don’t come out and say that Medicaid Divorce is a good idea, but the innuendo is that it may be a legitimate alternative to appropriate ethical planning, and they omit some very important points about the risks that are actually associated with this.
They also pass very quickly over the Spousal Impoverishment Rules, which afford certain protections to the healthy spouse, and they fail to substantially acknowledge whether or not a divorce would even be a valid means of avoiding the spend- down in different jurisdictions. Keep in mind that Medicaid eligibility rules and application of laws are jurisdiction specific, meaning they are different in each state.
In the Huffington Post article, it is suggested that Medicaid qualification rules actually encouraged divorce for married seniors who may only qualify for Medicaid as singles. Under the eligibility rules, there are very specific limitations on what assets a married couple can keep before they will qualify for Medicaid assistance.
We have had this inquiry here at The Estate Planning Group from time to time: “My husband/wife is in a home and requiring long term care. What would happen if we get divorced?” My short answer is – I can’t advise you to do that.
First of all, that decision probably should be more than a monetary decision. Even though I’m an attorney and understand that there are things that we can do legally that might not be entirely ethical, divorcing strictly for monetary gain as very problematic from both the standpoint of the sanctity of marriage, as well as the psychological personal responsibility and commitment that marriage represents.
Second, there is a high possibility that the timing of the divorce subjects the reasoning for the divorce to challenge, and it could be deemed a sham divorce, thereby causing a lot more problems than solutions. Be very wary, you should consult an attorney regarding your specific circumstances to understand exactly how the law applies.
Third, divorce is not accomplished by simply saying “ok, let’s say we’re divorced “on paper.”” Divorce proceedings are a legal process in their own right, and require resources (paperwork, filings, time and money) and take a long time to finalize. In Wisconsin, by the time you receive a final decree of divorce, it may be that all of the “protectable” assets have already been spent.
So let’s break down a few of the myths and the truths surrounding this issue. Oftentimes, people think that Medicare is going to provide for some coverage that’s necessary. Medicare might cover up to the first 100 days, for individuals over the age of 65, of the necessary care. However, once an individual is deemed to be in a long-term-care situation, in other words, they are no longer improving and no longer getting better to the point where they might be able to move from the high-care situation that they’re in, Medicare will cut off coverage. So it’s up to 100 days, it is not a guaranteed 100 days of coverage. That’s important to keep in mind. Then, once we’re past that Medicare coverage, the individual requiring the care and their spouse are responsible for paying the full cost of the care required until they meet the financial eligibility requirements of Medicaid. The couple is spending their money on the care – this is what we call the “spend-down”, because they are spending down until they meet the Medicaid eligibility requirements. Obviously, once you’ve spent $10,000 to pay a nursing home bill, your bank account balance will be “down.” Now keep in mind that Medicaid rules vary from state to state. So this is a very specific area. I understand the Medicaid rules under Wisconsin law as they’re currently written, so that is the rule framework that I typically comment and advise on. Each state has different exemptions and eligibility rules.
Once we’re in that spend-down, money is going out at a very quick rate. This is where the idea of a Medicaid divorce comes into play. The thought being if we divorce and assets are transferred to the healthy spouse, the one not requiring care, the institutionalized spouse will qualify for Medicaid, leaving all of the assets with the healthy spouse. And that’s not quite accurate.
In the first instance, Medicaid rules do not require one 100% spend down of all of the couple’s assets, there are some very specific exemptions that that allows a non-institutionalized spouse at least minimum assets to get by on – the so called “Spousal Impoverishment Rules.” The divorce may be challenged as a sham divorce, and the couple may be faced with a divestment penalty, and the divorce is a court process that will take time and resources – resource that may be better put to use in appropriate legitimate asset protection planning, or used for the care of the ill spouse and living expenses of the healthy spouse.
So that gets us to our punch line, how proper long term care planning can protect you from a Medicaid divorce from being in that situation in the first place where you’re looking for desperate moves to try to safeguard minimum assets. The bottom line is, there is no quick and easy panacea to avoid the high costs of long –term-care, and schemes made out of desperation usually have a high likelihood of failure and sometimes worse legal consequences than first considered.