What is Medicaid Divorce? Also known as “Grey Divorce”

Medicaid Divorce/GreyDivorce

Medicaid Divorce, also known as a Grey Divorce, is a dissolution of a marriage because one spouse needs long-term care which the couple cannot afford without significantly depleting their assets. This could mean one spouse becomes impoverished to preserve the assets for the other spouse. Medicaid divorce is intended to protect assets for the Non-Applicant Spouse. The Non-Applicant Spouse is also occasionally referred to as the Healthy Spouse or the Community Spouse. By legally divorcing, a Community Spouse may be able to receive a greater amount of the couple’s assets.

This strategy may seem as though it would solve all the problems of a married couple in this situation, but it can have serious legal ramifications for anyone attempting to pass off a dissolution of their marriage in an attempt to protect their assets from Long-Term Care costs and become eligible for government benefits.

How is income handled?

For income and child support, under the Affordable Care Act, Medicaid eligibility is determined based on the Medicaid household’s modified adjusted gross income. This does not include the child support that is received. These funds paid or received are not considered income available to meet the needs of the Medicaid applicant, but child support payments made by the payer may be considered as available income depending on the state.

Income related to alimony is handled in a slightly different way. Alimony paid is deducted from income.

How are Assets Calculated?

• If married, the assets are considered jointly owned regardless of how titled
• Divorce laws – community property state or equitable distribution state
• Separate property vs. marital property (gifts, inheritance)
• Property Division – moderate imbalance

Retirement Accounts

Is the IRA an asset of one spouse, both spouses, or neither spouse for Medicaid eligibility purposes? If you live in equitable distribution state and IRA value is very high, Medicaid divorce may be relevant. Is Medicaid Divorce Ethical?

Medicaid Divorce can not only unethical, but in some states, it is illegal. This strategy has already been tested and has been found to be illegal since it is a misrepresentation of facts to the court. Under any other circumstance besides the attempt to avoid paying for Long-Term Care and qualify for government benefits, the marriage would not be facing a dissolution. The passage below is copied from a court decision in Oklahoma:

Fraud and against public policy - Vandervort v. Vandervort, 134 P.3d 891 (Okla. Civ. App. 892): The parties colluded to misrepresent incompatibility as a ground for divorce to deceive public agencies concerning wife’s eligibility for Medicaid. The court may ask questions like the ones listed below:

  • Has there been a breakdown in the marriage such that the bonds of matrimony are irreconcilably broken?
  • Have there been financial and/or emotional pressures experienced as a result of circumstances of unhealthy or incapacitated spouse causing a breakdown in the marital relationship?
  • Have emotional pressures experienced because of circumstances of unhealthy or incapacitated spouse causing a breakdown in the marital relationship
  • What incompatibility issues are there?

Unless items like these can be proved in court, a Medicaid Divorce will not be successful and could potentially result in legal consequences for the parties attempting to pass off this Grey Divorce.

Ethical Responsibilities of the Attorney

• Each spouse should have their own representation
• Can the attorney determine that the unhealthy spouse is competent?
• Is a Guardian Ad Litem or Power of Attorney needed for the incapacitated spouse?

Qualifying for Medicaid WITHOUT Attempting a Medicaid Divorce

By creating an Irrevocable Asset Protection Trust with your Elder Law attorney, you can become Medicaid eligible. An Elder Law attorney will work with a client family to determine whether or not a strategy can be created for the family to become Medicaid eligible, and often assist them through the application process. At transfer of assets to a trust that protects them must be completed. This is done in “pre-planning” and must be outside the 5-year look-back window. This means that assets must be retitled into the trust’s name and / or a Medicaid Compliant Annuity. Other Medicaid Planning strategies include, but are not limited to:

  • “Half-a-loaf” planning or Promissory Notes
  • Caregiver Agreements
  • Spousal Transfers
  • Spousal Refusal – (available in New York & Florida only)

Spend Down Strategies

  • Funeral pre-payment: a prepaid or pre-need funeral contract allows you to purchase funeral goods and services before you die
  • Debt payoff strategies: by paying off a mortgage, a car loan or credit card debt, you can reduce the balance to help with spend-down
  • Repairs to the home: by fixing the roof, make the house handicapped accessible, buying new carpet, etc.
  • Replacing an old automobile: this can be useful for the healthy spouse
  • Updating your personal effects: purchasing of household goods or personal comfort objects. Buy a new wardrobe, electronics, or furniture.
  • Purchasing medical care and equipment: purchase items that are not covered by Medicare or Medicaid. See a dentist or get your eyes checked if those items will not be covered by your insurance.
  • Paying for in-home care: make sure you get any caregiving agreements in writing, especially if family members are providing the care.
  • Buying a new home: a home can be an exempt asset in certain situations, so it may be possible to purchase a new home.

Do you or someone you love need help with the Medicaid Application or Medicaid Pre- Qualification process? Call our office today to learn more. Even if the situation is unfolding quickly and it has become a crisis situation, there are solutions available to everyone. Call us today at (248) 792-9193.

How Do I Find an Elder Law Attorney Near Me?

Rutkowski Law Firm: Asset Protection & Estate Planning has an excellent record of crafting estate planning and asset protection plans for people throughout Michigan. We promise our clients a custom, comprehensive asset protection plan backed by a lifetime of education and support.

Because we conduct all our meetings online, we can assist clients who live anywhere. Take the next step to protecting everyone you love and everything you own through thoughtful planning. Call us today at (248) 792-9193 or fill out our online form to schedule a virtual consultation.

The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.

Rutkowski Law Firm: Asset Protection & Estate Planning
40950 Woodward Ave #130
Bloomfield Hills, MI 48304
(248) 792-9193


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