LTC Bullet: Divorce, Medicaid Style

Friday November 9, 2001


When people have failed to plan for long-term care and a crisis occurs, they often go to bizarre lengths to shift the cost of care to taxpayers and providers. The Center for Long-Term Care Financing advocates positive incentives to encourage all Americans to plan early and save, invest or insure for long-term care. Unfortunately, long-standing government policy contains many perverse incentives that discourage responsible long-term care planning. We periodically bring you examples of misguided public policy in LTC Bullets in order to illustrate the problem and to urge a solution. For our proposed solution, read "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" on the Center’s website at For further evidence of the problem, read on . . .

Divorce is a tried and true method to qualify for Medicaid nursing home benefits after private insurance is no longer feasible (you can't buy fire insurance when your house is in flames either) and when paying for one's own care is not the most desirable choice. Medicaid planners who use the tool of divorce to impoverish an ill spouse and enrich a well spouse (and themselves through fees) usually give lip-service to the undesirability of the option but rarely fail to drop it from their widely promulgated lists of Medicaid planning gambits despite its harsh consequences. Here are some excerpts from an article titled "When 'I Do' Becomes 'I Don't': Eliminating the Divorce Loophole to Medicaid Eligibility" published in The ElderLaw Journal (Vol. 9, No. 1, 2001, pps. 27-52) and written by the journal's law-student Editor-in-Chief Michael Farley. (We've dropped the extensive footnotes in the following quotes, but you can find the publication at any good law library if you wish to see the whole context.)

"Medicaid, the primary government funded program for the long-term care of poor persons, requires the participant to maintain an income that does not exceed subsistence level to retain eligibility for benefits. Older couples with higher than subsistence level income who want these benefits have employed very creative Medicaid financial planning tools to achieve eligibility. Under current law, one strategy that is available to enable elderly couples to qualify for Medicaid while at the same time preserve marital assets is simply ending the marriage by divorce.

"The divorce option will likely become increasingly attractive to the current generation of wealthy baby-boomers as they near retirement age. They can hardly be expected to willingly give up the standard of living to which they have grown accustomed just because their spouse has suffered a catastrophic injury or illness that requires full-time medical care in a nursing home. It is unlikely that the current generation will feel it is beneath them to preserve their hard-earned assets by taking advantage of poorly drafted Medicaid legislation." (p. 28)

"The financial difficulties that may result from Medicaid motivated divorce are illustrated by the example of Loyd and Jean Nichols. This couple decided to divorce in order to allow Loyd to qualify for Medicaid benefits after Loyd was diagnosed with amyotrophic lateral sclerosis, or ALS, and was unable to work. It was not until after Loyd died that the full implications of the divorce became apparent. As a result of the divorce, Jean was unable to collect on the substantial life insurance polices for which Loyd had named her the beneficiary. Realizing that the divorce was a mistake, Jean filed a motion with the court to set aside the divorce because both parties entered into it under duress. Loyd's children by a previous marriage, who became the beneficiaries of the life insurance policies after the divorce, contested the motion. After a long and difficult battle, the court finally granted the motion to set aside the divorce because it found that Loyd and Jean had: 'entered into the divorce for the sole purpose of aligning their assets so that Loyd could qualify for financial assistance from Medicaid . . . .'

"Thus, using divorce to qualify for Medicaid embroiled family members in a heated legal dispute just when they needed support and encouragement from each other the most. Such ironic and contradictory circumstances should be discouraged because of their negative effect on common social bonds." (pps. 44-45)

"Once couples are aware of the pros and cons of divorce, they can make a rational decision as to whether or not to pursue a divorce. As the previous discussion shows, if the couple decides to go forward with the divorce in order to qualify for Medicaid benefits, relatively few material obstacles stand in their way. However, divorce by an elderly couple may disrupt estate planning schemes and cause unanticipated negative emotional, financial and social problems." (p. 46)

"Congress should eliminate the divorce loophole in the Medicaid statute by expressly forbidding the use of divorce to concurrently preserve assets and qualify for Medicaid benefits because it is detrimental to the social fabric of the nation. While this recommendation will not solve all of the problems associated with the non-poor trying to qualify for Medicaid, it is a necessary first step. Society should not condone the use of divorce in this manner, given its negative social ramifications." (p. 46)