The Medicaid Divorce: How Splitting Up (On Paper) May Protect Your Partnership

Long-term illness can be brutal on a couple’s finances. When one partner is too sick to work, but the other can’t afford to pay for healthcare — something that often happens when one spouse has cancer, whether you have insurance or not — it can drain a family’s hard-earned resources. Often, the couple learns they have too much in assets to qualify for Medicaid, Medicare or Social Security Disability benefits. The government will not step in until a couple has “spent down” their own assets (that is, sold their house, liquidated their IRA, and emptied their bank accounts) — which can be a bitter pill to swallow for a pair who have may have worked hard for years or decades to build a life together for themselves and their children.

One option is to get a “Medicaid divorce.” It may seem strange, but this strategy helps to preserve both your finances and your relationship. The basic idea is that by divorcing and dividing up joint assets, a couple can keep at least part of what they built together. Once divorced, the sick spouse spends down their portion of the assets to qualify for Medicaid. The healthy spouse keeps the remainder in his or her own name. Beyond that, little changes in the couple’s relationship: they continue to stay together, parent their children together, and take care of one another — it’s just that they’re both legally single, and only one of them is still financially solvent.

Naturally, many people feel this strategy of divorce adds insult to injury! But marriage is not just an emotional or spiritual contract — it’s a financial one. And particularly when you have children to care for, solving financial issues is a key component to sustaining a marriage. So from this perspective, this legal loophole is a viable option to keep what’s hopefully a short-term health problem from having long-term financial consequences.

It can be tough to set aside the emotions involved with divorcing your life-long love, but consider the practicalities for a moment. Does it really benefit anyone for two people (or more, if there are kids) to become impoverished because of one partner’s health crisis? Absolutely not! A Medicaid divorce helps contain the “collateral damage” of a health crisis — from all perspectives, even the taxpayer’s. Keep in mind that the financial stresses of staying married during the crisis could have a serious negative impact on your relationship as well. Divorcing (knowing that you can remarry when the crisis passes) may actually ease some of the strain.

Understand that Medicaid divorce isn’t a simple thing; you need a lawyer with a solid understanding of family law, estate planning, and state Medicaid laws. In some states, you may not even need to file for divorce in order to transfer assets to your spouse and become eligible for Medicaid. So it’s important to consult with an attorneys who can guide you on when filing for divorce may help, and how to divide your joint assets appropriately.