What Is a Medicaid Divorce?

• What is a Medicaid divorce?
• How does a person become eligible for Medicaid?
• Essential knowledge: Medicaid Look-Back Rule
• Who benefits from a Medicaid divorce?
• What are spousal impoverishment rules?
• FAQ
• References

When one spouse becomes seriously ill, it can strain a marriage financially. While divorce may not be on your mind at all, it could provide you with a lifeline. How? By getting divorced, your ill spouse could possibly qualify for Medicaid health benefits, relieving your financial burden.

This is known as a Medicaid divorce.

What is a Medicaid divorce?

Medicaid divorce is also sometimes known as a "caregiver divorce.” It refers to the process of legally ending a marriage in order to create Medicaid eligibility for a spouse who requires expensive care – usually nursing home care. 

In such cases, getting the spouse the care they need would quickly deplete the couple’s marital assets. The best solution may appear to be a Medicaid divorce.

A Medicaid divorce can help protect the healthy spouse's assets from being used to pay for the sick spouse's medical bills. Ending the marriage creates two separate incomes and asset calculations, allowing the sick spouse to qualify for Medicaid assistance.

How does a person become eligible for Medicaid?

Let’s take a closer look at Medicaid for a moment. Medicaid is a needs-based government health insurance plan designed to help people with limited income and resources. Once you start receiving Medicaid, you don’t have to worry as much about medical bills because they are largely covered by the government. 

This may sound appealing to a lot of people with hefty medical bills. But to get Medicaid benefits, you must be eligible for Medicaid. And in order to become eligible, you must meet certain requirements before filling out a Medicaid application:

• Be a U.S. citizen or a qualified non-citizen
• Meet the income and asset requirements set by their state laws
• Have a medical condition or disability, or be responsible for the care of a child or other family member with a medical condition or disability
• Meet any other eligibility criteria set by their state, such as being pregnant, being over a certain age, or having a certain medical condition

An example of Medicaid eligibility 

Medicaid elibigility varies by state. In every state, you only qualify if your assets do not exceed a certain value. Part of this calculation involves your annual income. 

In California, the Medicaid program is known as Medi-Cal. To qualify, your income must fall below a threshold calculated based on the number of people in your household. That income level is $39,900 if you have four people living in your home. But in Illinois, your income level must fall below $41,400 per year if you live in a household of four.

You must meet other criteria as well. For example, both California and Illinois require that you be one of the following: pregnant, over 65, blind, disabled, living with a disabled person, or living with a child under age 21.

When you apply for Medicaid, you must prove that you meet the eligibility criteria by submitting paperwork, copies of pay stubs, and other forms required by your state. The best way to find information about Medicaid eligibility in your state is to search reputable government websites and inquire in person at your local Department of Human Services.

Essential knowledge: Medicaid Look-Back Rule

The Medicaid Look-Back rule is a policy designed to prevent people from gaining Medicaid benefits unfairly. It was developed to discourage the gifting or selling of assets under market value in an attempt to qualify for Medicaid. 

When you apply for Medicaid, the agency “looks back” at transfers of assets that occurred during the “Look-Back Period.” If a Medicaid applicant or their spouse appears to have transferred assets in order to gain access to Medicaid, they become ineligible for Medicaid for a period of time, known as the penalty period.

States are free to make their own Look-Back rules. Although in most states, the Look-Back period is 60 months, it is only 30 months in California, and according to the American Council on Aging, the California Look-Back Rule will be completely phased out by July 2026.

Who benefits from a Medicaid divorce?

A Medicaid divorce, also sometimes known as a caregiver divorce, can benefit the spouse who needs nursing home care by making them eligible for Medicaid assistance. Medicaid can help cover the high cost of their medical care. It can also benefit the healthy spouse by protecting their assets from being depleted by sky-high medical bills.

A couple may consider a Medicaid divorce if one spouse requires expensive long-term medical care they cannot afford and the healthy spouse wishes to protect their joint assets from being used to pay for this care. By divorcing, the couple's assets and income are separated, which can allow the spouse requiring care to qualify for Medicaid without having to spend down their shared assets.

It's important to note that while a Medicaid divorce may provide financial benefits and health insurance coverage, it is a complex legal process. Thus, it should be undertaken with the help of an experienced attorney who can guide the couple through the process, making sure all legal requirements are met. 

What’s more, this process entails a legal and actual divorce. The couple must be comfortable with legally ending their marriage and becoming ex-spouses.

What are spousal impoverishment rules?

Spousal impoverishment rules are a set of Medicaid regulations. They were designed to protect the financial well-being of the healthy spouse of a Medicaid beneficiary when the beneficiary is in long-term care. In essence, these rules prevent the healthy spouse from being made destitute by the high cost of the ill spouse's medical care.

Under these rules, if one spouse requires nursing home care and is eligible for Medicaid, the healthy spouse is allowed to keep a portion of their shared assets and income to meet their living expenses. The exact amount that can be retained varies by state. Typically, it ranges from a minimum of around $25,000 to a maximum of around $120,000.

In addition, the healthy spouse is allowed to retain a portion of the couple's income for living expenses – typically up to around $3,000 per month. This income is not counted toward the Medicaid eligibility requirements of the ill spouse.

Spousal impoverishment rules may diminish the frequency of Medicaid divorces because they provide a way for the healthy spouse to protect their assets while allowing the ill spouse to qualify for Medicaid. In fact, the rules were put in place specifically to address the issue of Medicaid divorce.

Spousal impoverishment rules vary by state. Check with your state government to learn your asset limit if your spouse is receiving Medicaid. 

Community Spouse Resource Allowance (CSRA)

The Community Spouse Resource Allowance (CSRA) is a set amount of assets that the healthy spouse of a Medicaid beneficiary can retain without affecting their partner's eligibility for Medicaid. This allowance helps prevent the healthy spouse from becoming impoverished due to their partner's high medical bills, allowing them to maintain a reasonable standard of living despite any costs associated with medical expenses for the ill spouse. 

It also ensures that couples do not have to consider divorcing in order to meet Medicaid eligibility requirements, helping to promote marital stability and protect both spouses from financial hardship.

Minimum Monthly Maintenance Needs Allowance (MMMNA)

The Minimum Monthly Maintenance Needs Allowance (MMMNA) is an allowance of income that the well spouse can retain outside of Medicaid eligibility for their loved one. The MMMNA helps the non-applicant spouse meet their basic living needs by ensuring some level of income that's not counted toward Medicaid eligibility.

FAQ

Will being on Medicaid affect my Social Security benefits or veteran benefits? 

Not directly. Whereas Medicaid is a state-run program, Social Security and veteran benefits are federal programs. However, as we’ve mentioned, you must meet certain eligibility requirements to qualify for Medicaid. If your Social Security or veteran’s benefits push your assets and income over the qualifying threshold, they could theoretically inhibit your eligibility for Medicaid.

I’m a Medicaid spouse. How do I find out my CSRA and MMMNA?

You can check the online Medicaid guidelines for your state. Each state has different rules in this regard. You can also work with a caseworker through your local Medicaid agency. Although these people tend to be very busy, if you make an appointment with a person at an agency, you can eventually get the answers to your questions – and peace of mind with that information.

Can we live together after getting a Medicaid divorce?

You can live with whomever you choose, but if you are intending to stay together as a couple despite your Medicaid divorce, it’s a good idea to seek legal counsel and financial advice first. We suggest scheduling a meeting with a lawyer who can inform you of your rights and a certified divorce financial advisor (CDFA) who can help you understand the logistics of your new financial situation. 

Who can I talk to about a possible divorce?

Getting a Medicaid divorce is complex and requires a keen eye for detail and process. Hello Divorce can help you determine if a Medicaid divorce is right for you and help you locate a qualified and experienced attorney, if necessary. Schedule a free 15-minute call to learn more.

References