As the costs of long-term care continue to rise, many couples find themselves grappling with how to protect their assets while still qualifying for Medicaid assistance. One strategy that sometimes comes up in these discussions is divorce. But is ending a marriage truly a good way to shield assets from Medicaid spend-down requirements? Let’s explore this complex and sensitive topic.
Understanding Medicaid Long-Term Care
Medicaid is often the last resort for covering expensive long-term care costs. To qualify, applicants must meet strict income and asset limits, which vary by state but are generally quite low. New York State allows a Medicaid applicant to retain up to $31,175 in non-exempt assets, but other states have a limit as low as $2,000. Without advance planning, these strict eligibility rules often require spending down assets during a crisis. Additionally, while New York and other states may allow “Spousal Refusal” enabling one spouse to obtain Medicaid benefits even if the other spouse has significant assets, Medicaid may still seek spousal contribution from the healthy spouse.
The “Medicaid Divorce Strategy”
The idea behind a “Medicaid divorce” is that by legally ending the marriage, the couple can allocate most of their assets to the healthy spouse, allowing the spouse needing care to qualify for Medicaid more easily. In theory, this could protect the couple’s life savings from being depleted by long-term care costs.
However, this strategy will not work. If a couple is divorced, leaving one spouse a “ward of the state”, namely, in need of Medicaid long term benefits, any distribution that is less than equitable for the Medicaid applicant spouse can be challenged. Medicaid can consider an agreement or divorce settlement granting the healthy spouse a greater share as a “transfer” resulting in a Medicaid penalty during the five-year “lookback,” and further, the healthy ex-spouse can be sued by the state (in place of the Medicaid applicant spouse) for monthly maintenance to be applied to the impoverished Medicaid recipient spouse.
In addition, divorce is not something to take lightly. Even if this strategy worked for Medicaid purposes, there are other significant risks and drawbacks, such as social security and other retirement benefits, the emotional toll which shouldn’t be underestimated, not to mention ethical considerations.
Alternative and Better Strategies
Instead of considering divorce, there are often better ways to protect assets while still qualifying for Medicaid:
- Irrevocable Trusts: When properly structured and timed, these can protect assets from Medicaid spend-down.
- Utilizing Medicaid-Exempt Transfers: Transferring assets to certain exempt individuals (like a spouse or a disabled child) or into specific types of trusts that are recognized by Medicaid rules. These transfers may not trigger penalties if done correctly and in compliance with state and federal regulations.
- Other Strategic gifting done before the five-year look-back period (at least 5 years before you or your spouse need nursing home care), can preserve assets.
- Spend-Down Strategies: Using countable assets for exempt purposes, like home improvements or paying off debt, can be beneficial.
Conclusion
While the idea of a “Medicaid divorce” might seem like a clever solution, it is not recommended as an asset protection strategy and there are better alternatives available.
If you’re concerned about protecting assets in the face of potential long-term care needs, it’s crucial to consult with an experienced elder law attorney. They can help you explore legal and ethical strategies that align with your specific situation and state laws. Remember, the goal is to find a solution that not only protects your financial well-being but also preserves your dignity and family relationships.
Our experienced and compassionate elder law team is here to guide you. Call us today at (516) 466-WILL.
