Frequently I have married clients who come to me who have been married for decades and one spouse is declining due to dementia or other physical and/or mental issues.
That ill spouse needs care at home, assisted living, or even a nursing home and do not have long-term coverage or other coverage options to pay. Many times, the first question is: do you recommend a divorce? Almost always the answer is no, and it is not needed, at least in Indiana. A couple who has been married for decades and get a divorce can be unpalatable both for them and for family/friends as well.
This is an old Indiana urban legend that divorce is the only way to protect their life-long hard-earned savings. A single/divorced/widowed applicant for Medicaid has less legal options to protect assets, usually only half or so of assets, versus almost all the assets of the married couple that can be preserved and protected.
Let me explain some of the basic laws, rules, and definitions. An “institutionalized spouse” is the spouse needing long-term care services and possible Medicaid assistance to pay. A “community spouse” is the healthy spouse that doesn’t currently need assistance and long-term care. Since 1989, Indiana applies the spousal impoverishment laws that allows the community spouse to legally retain some countable assets and not go broke (“impoverished”). In addition, the community spouse can also have exempt assets such as unlimited real estate in his/her name whether income-producing or not; one car of any value (can have more than one car but only one is exempt and not countable); and retirement accounts in his/her name.
When the institutionalized spouse has 30 days of continued institutionalization (or when apply for at-home Medicaid Waiver) a “snapshot” date is established. Medicaid will look at all the marital assets and will count some and exempt some (such as mentioned above). Any countable assets above an allowed set amount for the community spouse can also be legally protected by a properly structured and timed short-term Medicaid-compliant annuity or promissory note, and certain spend-downs that allow the community spouse to keep almost all the couple’s assets if remain married.
One of the biggest assets for most people are their retirement accounts (e.g., IRA, 401k). Indiana (some States do not) exempts the community spouse’s retirement accounts so it is not a countable asset when planning for the institutionalized spouse. However, the institutionalized spouse’s retirement accounts do count and must be addressed.
The community spouse can keep ALL their separate income, and many times some or all the institutionalized spouse’s income too if the community spouse income is below a certain amount and/or if more is needed for shelter and utility costs for the community spouse.
It is important during the planning/legal process that the community spouse’s beneficiary designations such as retirement accounts, and their Will includes the correct asset protection language in the event the community spouse would pass away first. If not, and assets are transferred outright to the institutionalized spouse on Medicaid or if the institutionalized spouse is disinherited improperly, then this could result in the institutionalized spouse no longer receiving further Medicaid long-term coverage.
Like all cases, these are fact sensitive, and a comprehensive consult and review of documents/assets and the overall situation is necessary and crucial to maximize legal planning options, especially when one spouse of a married couple needs long-term care.