Long-term Care: Divorce to Pay for it

Imagine that you have been married to the love of your life for 55 years, only for your spouse to be diagnosed with dementia a couple of years ago. Despite your best efforts to provide care, it’s becoming increasingly obvious that they will soon need to move into a long-term care facility. Around the same time as your spouse’s diagnosis, you received an inheritance that was wisely invested. However, it would not be enough to cover the high cost of long-term care. Neither of you holds a long-term care policy, nor can you qualify for Medicaid due to combined assets. You have no choice. Although you feel conflicted, you decide there is only one option to preserve your assets for your children and provide the care your spouse needs. You believe you must divorce.

What does divorce have to do with long-term care?

The type of divorce referenced above is known as a Medicaid divorce. When one spouse needs to qualify for Medicaid to cover the cost associated with long-term care, the other spouse must find a way to protect their assets. By divorcing, the healthy spouse will take sole ownership over the couple’s assets, leaving the unhealthy spouse to be asset-poor, a requirement for Medicaid.

Why is Medicaid necessary to pay for long-term care?

During the last five years of life, it is estimated that the average cost of long-term care is $233,000- $367,000. Even with a long-term care policy, that five-year span will still cost about $140,000 out of pocket. Medicare does not cover long-term care. However, Medicaid does. The problem arises when you are not wealthy enough to pay out of pocket for long-term care but are also not impoverished enough to qualify for Medicaid. Because of this gap, people look for creative ways to cover long-term care expenses.

Are there limitations to this strategy?

Medicaid legislation varies from state to state. With more and more people using creative options to qualify for Medicaid, the laws have changed in recent years. Medicaid divorce is not relevant in most states. However, some states still allow it. Despite allowing the strategy, divorce laws may still impede it. Additionally, when assessing for benefit qualification, Medicaid typically has a five-year look-back period. Its purpose is to prevent people from donating, selling off, or transferring assets for the sole purpose of Medicaid qualification. If Medicaid believes that assets were intentionally transferred to others at lesser values within that look-back period, you face the risk of being denied coverage.

Are there alternative strategies to cover long-term care?

Medicaid divorce is not the only creative strategy people use for long-term care coverage. Other common strategies include:

• Ownership transfer to simply transfer ownership of assets to another individual.

• Irrevocable funeral trusts allow for the payment of funeral expenses in advance. This converts countable assets into exempt ones.

• Asset protection trusts, also known as Medicaid trusts, specifically designed to remove assets from your estate while remaining in control of your assets.

• Medicaid-compliant annuities purchased to turn one lump sum of money into monthly income.

• Spousal refusal for a healthy spouse to legally refuse payment for the long-term care of a spouse in need. Medicaid can’t refuse care due to refusal of payment, which automatically qualifies the spouse in need.

Just like Medicaid divorce, all creative strategies face limitations. The variation of legislation, potential penalties, overlooked details, and lookback periods make this creative strategy process a highly complex one that takes proper planning. Seeking the guidance of an elder law attorney is highly recommended when planning for your future. Attorneys specializing in elder law and estate planning are well versed in legal strategies for long-term care needs. They are an invaluable resource when it comes to knowing your options. If you have questions or would like to discuss your personal legal matters, please don’t hesitate to contact us at (321) 729-0087.