Preplanning Much Better Than Divorce for Long Term Care

A recent court decision from the Nebraska Supreme Court shows the perils of not planning for long term care before there is a problem.  For example: a now divorced 94-year-old must pay so much alimony that it brings his income below the poverty level and the only purpose of the alimony is to pay his 95-year-old ex-wife’s nursing home bill.  See Binder v. Binder (Neb., No. S-14-783, June 26, 2015).

In 1982, Glenn and Laura Binder married in Pawnee County, Nebraska.  It was a second marriage for both of them and they had no children together.  Glenn ran a farm and a fertilizer business from which he retired.  During their marriage Laura never had an outside occupation although she did do some administrative tasks for the fertilizer business.  After Laura became wheelchair-bound and largely incapacitated for a two year period, she moved into a nursing home in December 2012.  Laura had income of approximately $3,000 per month: her Social Security income, a small pension from her former husband and a small long-term care insurance benefit.  Nonetheless, the $5,400 per month cost of her nursing home plus other expenses resulted in a monthly deficit of $3,302.60 per month. 

At some point, Glenn filed for and was a granted a divorce from Laura (we are not told the precise date when that occurred).  As part of the divorce decree, Glenn was ordered to pay alimony to Laura in the amount of $3,302.60 per month.  That is precisely the amount of Laura’s ongoing monthly deficit towards payment of her nursing home costs and the divorce decree specified that was the intended purpose for the alimony imposition.  On appeal, Glenn unsuccessfully argued that the amount of alimony was impermissible because it brought his resulting income below the poverty line.  The Court denied his appeal on the grounds that the statute Glenn recited would only apply if there were minor children involved.  For our purposes, we are less interested in the legal reasoning of the Court’s opinion and much more interested in observing how Glenn and Laura’s situation manifests the perils of not planning adequately for long-term care. 

The Court does not delve into how much of Glenn’s motivation for divorce was personal and how much was an attempt try to protect the couple financially.  However, as the Court notes in a footnote, they were well aware that Glenn only pursued his divorce after 32 years of marriage and after Laura began incurring nursing home costs that were well beyond their means.  The Court decision does not report how much Laura owned when she moved into the nursing home but we do learn she is now down to about $5,000 in assets.  What is interesting is even though the opinion’s footnote describes Laura as having “exhausted nearly all of her assets,” she still is not impoverished enough to qualify for Medicaid.  Nowhere in the opinion is there any mention of an attempt to qualify and apply for Medicaid. 

We learn that Glenn holds about 200 acres of farmland and a residential lot “in trust” for which he is the sole Trustee.  It is clear the Court never compelled Glenn to produce a copy of the trust agreement(s) so the Court knew little other than hearing Glenn testify that he could “cancel the [trust] at any time.”  In its footnote, the Court noted that Glenn and Laura both stipulated that that land was Glenn’s premarital property.  However, the alimony amount was seen as reasonable by the court because Glenn could sell the farm land. 

It is useful to consider the “what ifs” if Glenn and Laura had not divorced and Laura were to now apply for Medicaid in July of 2015.  If Glenn had transferred the land into a properly drafted irrevocable trust on or before July 2010, then it would now be completely protected.  The farmland would not be a countable asset and would not even need to be reported on a Medicaid application.  Instead, Glenn has kept the property in a revocable trust so that it would be fully countable as an asset.  While he is not being compelled to sell all or any portion of the land, his ownership has now resulted in him paying substantially all of his income towards Laura’s nursing home costs as alimony. 

Glenn’s income situation would also be different if he and Laura remained married and she now applied for Medicaid.  Under the Medicaid rules, since Glenn has substantial income of his own, it is a given that all of Laura’s income would need to be paid to the nursing home except for a small monthly personal needs allowance.  But as a non-institutionalized spouse of a nursing home resident, Glenn would be considered the “community spouse” by Medicaid  and would be allowed to keep all of his own income.  We are not given enough facts to figure exactly how his income allowance would be calculated.  However, in Nebraska the state’s current Medicaid rules provide that a community spouse of a nursing home Medicaid applicant must be allowed to keep at least $1,966.25 per month.  Glenn’s monthly income is $2,890.73.  Since his alimony is $3,302.60 per month, he is in a much worse position divorced than if they had stayed married, timely had done the planning allowed for by the law and applied for Medicaid as a married couple.

Please call us at 860-769-6938 if you have any questions about the issues presented above or if you care to discuss any other planning issues with us.

 

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