All About New Jersey Medicaid Divorce
Divorce, whether it represents the dissolution of an emotional and life partnership or it is utilized as a strategic legal tool, is a complicated and emotionally draining process. Dividing assets, operating separate households, and paying child support and/or alimony are some of the most common financial burdens. When one or both spouses needs to receive Medicaid health care benefits, a divorce can potentially impact their eligibility. Even if neither of the spouses are currently receiving Medicaid, the way a couple’s assets are divided during a divorce can impact their further eligibility for Medicaid funded long-term care, particularly in their later years. Therefore, a full understanding of how your Medicaid eligibility can change as a result of your divorce and how to carefully plan for this is essential. For experienced legal guidance on Medicaid and divorce in Monmouth, Ocean County, and throughout Southern New Jersey, contact the Bronzino Law Firm at (732) 812-3102. One of our attorneys is ready to assist you in a complimentary consultation.
A Clearer Understanding of How Marriage Affects Medicaid Eligibility in New Jersey
Individuals must meet strict eligibility requirements based on annual income and assets in order to qualify for Medicaid in New Jersey. There are different types of Medicaid programs available and each has its own thresholds. In determining eligibility, it is important to understand which assets are considered and which are not. NJ FamilyCare is the state-funded Medicare program available to New Jersey residents, regardless of their immigration status. Adults ages 19 through 65 can qualify for NJ FamilyCare benefits if their household income is 355% of or below the Federal Poverty Level, which is currently set at $15,060 annually for one person.
Being married can make several different types of assets that would otherwise be counted toward one’s eligibility not-countable or excluded. The spouse applying for Medicaid is known as the applicant and the other spouse is known as the community spouse. One of the most significant exemptions is the community spouse’s income. Only the applicant’s income is considered when determining Medicaid eligibility. A marital home where the other spouse lives is not counted toward eligibility. This protects the home for the other spouse. Retirement accounts like IRAs and 401ks that belong to the community spouse are also not counted toward Medicaid eligibility. One vehicle, usually the one owned by the community spouse, is also exempt.
Finally, the community spouse is allowed to keep a certain amount of the couple’s combined assets, which is known as the Community Spouse Resource Allowance (CSRA). The CSRA is currently set at a limit of $148,000 in 2024.
The Importance of Proactive Legal Planning for Medicaid Divorce in NJ
Sometimes, a couple may decide that it is in the best interests of one or more of the spouses to go through the divorce process as a legal strategy for obtaining eligibility for Medicare. This tactic is often known as a “Medicaid divorce” or “caregiver divorce.” In these situations, the couple may still be romantically involved and/or committed to a life partnership, but they have decided to dissolve their marriage as a way to protect their assets and allow one spouse to qualify for Medicaid benefits.
This strategy can be particularly beneficial to individuals who are in need of long-term care like a nursing home, memory care, or long-term rehabilitation and wish to shield their assets from the Medicaid “spend down’ requirements. It may also be beneficial for those facing severe health crises like cancer. By obtaining a legal divorce, the couple can separate their assets and income to achieve eligibility for Medicaid benefits. However, the couple’s marital assets must be divided very carefully with the objective of Medicaid eligibility as a central goal of the process. Otherwise, as we will read in the case of divorce being a risk to medicaid benefits below, the divorce process could cause the couple to lose some important marital assets exemptions that apply when calculating Medicaid benefits.
Whereas, in a typical New Jersey divorce, a couple divides their marital assets equitably (which is not always equal, but is based on various factors like the each spouse’s financial needs, each spouse’s future income earning potential, and contributions during the marriage), in a strategic Medicaid divorce, the couple may choose to allocate a much larger portion of the marital assets to the spouse who will not be seeking Medicaid benefits, in order for the benefit-seeking spouse’s assets and income to be low enough to meet thresholds for eligibility.
Repercussions for Medicaid Recipients who Fail to Look at their Divorce from All Angles
When an individual who receives Medicaid benefits gets divorced, the way their assets are divided in the divorce can greatly impact their eligibility because a portion of their household income and various assets, which were once exempt or not-counted towards Medicaid thresholds, may no longer be exempt. For example, whereas a community spouse’s income was once exempt, if the couple divorces and the Medicaid recipient begins to receive alimony from their former spouse’s income, this money will be counted towards the threshold and no longer exempt.
Similarly, if the spouse receiving Medicaid benefits takes sole ownership of the marital home after the divorce, the residence is no longer exempt. Alternatively, if the marital home is sold and the proceeds are divided, the portion of the proceeds taken by the Medicaid beneficiary will impact their eligibility. They will also lose the benefit of being able to exclude a certain amount of their total assets through the CSRA. Finally, when dividing assets, if the Medicaid recipient spouse takes a portion of any of their former spouse’s retirement accounts, these assets are no longer exempt from threshold calculations.
There are many ways in which maximizing the assets you take during a divorce can be at odds with the goal of maintaining Medicaid eligibility. If the assets are not significant enough to warrant private healthcare insurance and make you ineligible for Medicaid benefits by only nominally exceeding the income and asset thresholds, then it is certainly worth being strategic about which assets you take during your divorce to avoid the loss of these benefits.
The Complex Interplay Between Divorce, Medicaid Eligibility, and Long-Term Care Needs
The impact of asset division on Medicaid eligibility becomes particularly important for most individuals during their retirement years. Medicaid programs that pay for long-term care like a nursing home or a long-term rehabilitative facility usually have stricter asset and income requirements, plus a “spend down” requirement, which often applies to seniors who were on Medicare. Medicare, a program that is different from Medicaid and designed for individuals over the age of 65, does not cover long-term care. So, if a person receiving Medicare benefits must go into long-term care, they must pay for it with their own assets until all non-exempt assets have been used. This is the “spend down” requirement. Once those non-exempt assets are gone, the individual may qualify for Medicaid, which covers long-term care.
On one hand, divorce can jeopardize long-term Medicaid benefits by removing key asset and income exemptions that apply to married couples only. For example, if a spouse receives the marital home in the division of the couple’s assets, their residence is no longer protected or exempt and they may have to sell their home to pay for long-term care unless they explore alternative options like a Medicaid protection trust.
A newly divorced person may feel like they have lost a large portion of their wealth during the divorce process and that their living expenses are now higher. In many cases, both sentiments are a reality. However, while your net worth may have actually decreased, due to all of the exemptions on income and assets available to married couples when determining Medicaid eligibility, you may be less wealthy but also lose your Medicaid benefits. Additionally, certain asset protections available to married couples when one spouse is in need of long-term care through Medicaid are not available to divorced, single individuals. In this way, they are in a position more similar to a widow, who must consider an estate plan that protects their home if they need to go into long-term care.
Decision-Making in New Jersey Divorce When Medicaid is a Factor
For some other couples, going through a strategic divorce can be a tool to protect their assets yet still obtain Medicaid benefits. This is particularly true when a couple’s household income and assets exceed Medicaid eligibility even when all marital exemptions are taken into account. By putting assets in the name of the non-benefit seeking spouse, they can be protected and not counted towards threshold requirements.
There are many ways in which maximizing the assets you take during a divorce can be at odds with the goal of maintaining Medicaid eligibility. If the assets are not significant enough to warrant private healthcare insurance and make you ineligible for Medicaid benefits by only nominally exceeding the income and asset thresholds, then it is certainly worth being strategic about which assets you take during your divorce to avoid the loss of these benefits.
However, there is also a five-year look-back period for determining long-term care Medicaid eligibility. Any asset transfers in the five years preceding an individual’s application for Medicaid benefits is subject to serious scrutiny and improper transfers can result in penalties and loss of eligibility. Assets, including a house, must therefore be in a Medicaid protection trust for more than the five-year look back period in order for the estate planning strategy to be effective.
In either scenario, whether divorce puts an individual’s Medicaid eligibility at risk or serves a strategic tool to obtain benefits, it is critical that couples work with an experienced divorce and estate planning attorney to ensure they understand the complex rules and divide their assets in a way that serves their Medicaid eligibility objectives.
Don’t Decide Alone and Get Experienced Legal Advice for Medicaid Divorce In New Jersey
As you can see, there are a lot of complexities and nuances in determining Medicaid eligibility when certain assets and income that were once exempt from threshold calculations become countable after a divorce. Not every family law attorney understands the detailed regulations around Medicaid benefits, how to plan for long-term care needs, and the best strategy for protecting your wealth as you navigate these decisions during your divorce. Our team of experienced family law attorneys at Bronzino Law Firm has helped countless clients to plan for these important considerations when dividing their assets and/or requesting alimony during a divorce, since we also frequently assist clients with estate planning matters. It is a delicate balance, but one that we routinely handle with precision and care on behalf of clients in Bradley Beach, Long Branch, Lavallette, Ocean Township, Manchester, Point Pleasant, Belmar, and throughout the Jersey Shore. To speak with one of our knowledgeable family lawyers, please contact us today on our website or by calling (732) 812-3102 for immediate assistance.