To our readers: Last week, a 42-year-old father of three young children wrote us about his 39-year-old wife who is unable to move from the neck down. He can no longer provide for her care at home, go to work, and also take care of their children. At the same time, the family can’t afford the $6,000-plus per month it costs for a nursing facility. And there is no long-term care insurance because who could imagine a 39-year-old finding himself/herself in this condition? Medicaid won’t help, penalizing this young family for being frugal and saving their money. And, without proper planning, any inheritance will go to pay nursing home expenses, not to educate their children.

He and his wife are torn because their options are limited. They have considered divorce in order to allow her to qualify for Medicaid assistance that would provide for her care while allowing him to raise and educate their children.

This young family concluded that, for economic reasons, divorce was their only option, especially in light of the draconian federal legislation that should have been called the Family Destruction Act of 2005. So if you are facing this dilemma, here are some tips on how to try to make sure hard-earned dollars are not flushed away.

While married, Medicaid qualification is based on a “snapshot” of the assets and income of both husband and wife. Once divorced, the only person subject to Medicaid’s financial microscope is the former spouse in the nursing home. That person is allowed to maintain countable resources of $2,000 -- plus a house, a car, and other minor properties. Medicaid does, however, allow each person who applies to have a pre-paid, pre-need burial contract -- so long as the contract is irrevocable.

So, prior to severing the relationship, all assets, including the house, should be transferred to the spouse who will remain in the community. Since qualified funds – like 401(k)s, IRAs, etc. – can’t be transferred, those assets in the hands of the former spouse who applies for Medicaid may well have to be spent.

Pending the divorce, the spouse to whom the assets are being transferred should sign a new will to prevent assets from flowing back to the nursing home resident and thereby disqualifying him or her. In some instances, a special needs trust can be created for the nursing home resident whereby no payments will be made that disqualify that individual from Medicaid benefit.

The beneficiaries of all life insurance and qualified funds should be changed to trusts for the children. The parents, grandparents, and siblings of an institutionalized person who is receiving Medicaid benefits should either establish special needs trusts in their wills or include language to assure that institutionalized person does not inherit under the will in any event.

So long as the institutionalized person has sufficient capacity, he or she should sign new durable financial and health care powers of attorney by which they can still name their former spouses to make their decisions for them should they be unable to do so. But a caveat here to prevent the Terri Schiavo situation: Make sure these documents include language strong enough to disqualify a former spouse who becomes involved in a relationship with another person in order to avoid conflicts of interest.
While the decision may be difficult, the additional planning requires expertise that resides in the hands of lawyers who understand all of these issues. This is not an exercise for the inexperienced