Divorce and Health Insurance Benefits


Divorce and Health Insurance Benefits

Divorce causes major issues with health insurance benefits. Many families have employer provided and/or paid for health insurance benefits that cover the entire family. It is not uncommon to see situations where the other spouse is a stay at home parent, with absolutely no access to health insurance benefits, or employed at a job with either no health insurance benefits available or those benefits available at a substantial cost. After a divorce, the spouse with the family health insurance coverage can no longer cover the other parent. They are no longer “family” members who can take advantage of one health insurance policy. How to then ensure that everyone stays insured does become an issue for negotiation and/or divorce litigation.

If both parties do not have health insurance benefits available and if the cost of obtaining those health insurance benefits for the other party after a divorce become prohibitive, there is one way to continue benefits without additional cost. That way is to enter into a separation agreement, but delay the divorce. That way, the parties actually do remain married and they can stay on the same health insurance plan even thought they are separed. The parties can consent to waiting for one, two or more years before either one files for a divorce. While the parties will remain married, their property, custody, and support issues will be addressed in their separation agreement. Under some circumstances, this is an optimal resolution. For example, what if both parties want one spouse to remain at home for several more years with young children, but they do still want to separate and divorce? This option works for them. They can separate, agree upon getting a divorce and all of the terms that they have to agree upon, but delay the final divorce so that they can keep cost effective health insurance benefits in place.

The above example can provide some difficulties that must be discussed in detail with your divorce attorney. For example, if you separate but do not divorce, your federal tax filing status may be affected. Also, in some states, it is not as easy as in other states to enforce a separation agreement. Or, in yet other states, it is possible for one spouse to take the advantages provided by the agreement for a year or two and then go to court and seek entirely different forms of financial relief in a divorce action. Only a divorce attorney licensed to practice in your state can advise you on these issues.

Another option for couples divorce is COBRA coverage. COBRA is a federal law which m andates that a person covered under a health insurance policy be given the right to continue that coverage, at their own cost, for a set time period if certain requirements exist. For example, if you obtain a divorce and your spouse had family health insurance coverage through his employer, the employer would have to provide COBRA coverage for you after the divorce. That COBRA coverage would require that you have the same health insurance policy, although your coverage would now be individual and not family. You would have to pay the employer’s cost for that individual policy.

It is not uncommon for a stay at home spouse or a spouse who has less income or employment options to obtain COBRA coverage and to negotiate that their spouse pay for that coverage for a specified time period after the divorce. In doing so, this gives the spouse who did not have coverage available some time to either obtain employment with coverage or become financially settled and able to afford their own coverage.

Divorce and Retirement Plan Proceeds

Unfortunately, divorce is increasingly common in our society. Because divorce entails the dividing of assets, some of which have tax implications, it is important to be aware of potential “tax traps” when you begin planning. One such trap in the area of retirement plan assets is the existence of vested account balances.

In the past, with traditional defined benefit plans, the plan participant was promised a retirement benefit, but he or she had no vested retirement account balance. However, with the shift toward defined contribution plans, vesting for employee contributions is immediate, and vesting for employer contributions builds quickly. Consequently, as more Americans participate in 401(k) plans and other defined contribution retirement plans, dividing vested retirement plan assets in divorce situations has created complex financial issues.

Protect Yourself with a QDRO

A qualified domestic relations order (QDRO) is a judgment or order that involves child support, alimony, or property rights pertaining to a spouse, former spouse, child, or other dependent. A QDRO can be used to establish one spouse’s right to part or all of the other spouse’s retirement plan(s)— and to ensure that the recipient spouse pays the tax.

To be protected through a QDRO, it must specify the following:

o The name and address of the plan participant and the “alternate payee” (typically, the participant’s spouse).

o The name and account number of each retirement account involved.

o The percentage (or dollar amount) of each plan that is to be paid to the alternate payee.

o The period of time or the number of payments covered by the QDRO.

The QDRO must be a part of the divorce decree or a court-approved property settlement document. The decree should also specify that a QDRO is being established under Section 414(p) of the Internal Revenue Code (IRC) and the particular state’s domestic relations laws. Intent to establish a QDRO is insufficient; it must be spelled out in the divorce papers.

Getting divorced can be “taxing” enough, but it need not be made more difficult by mish andling the division of assets in a retirement plan. And, although this particular decision does appear to provide room for straying from the precise wording of the statute, applying the proper language in a divorce decree may help ease some of the inevitable complications that can arise, facilitating a smoother transition for all involved. Qualified legal advice should be obtained to help ensure that any desired planning actions are worded and structured properly.

This article appears courtesy of [Reps full name]. [Reps first name] is a Registered Representative offering securities through MetLife Securities, Inc.(MSI) (member FINRA/SIPC), New York, NY 10166. Insurance and annuities offered through Metropolitan Life Insurance Company (MLIC), New York, NY 10166. MSI and MLIC are MetLife companies. [He/She] focuses on meeting the individual insurance and financial services needs of people [in/from] [name occupation/profession/business/or lifestyle market]. You can reach [rep first name] at the office at [registered branch office address and phone number, including area code]. MetLife does not provide tax or legal advice.

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This article appears courtesy of Karl Susman. Karl Susman is a representative of the New Engl and Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New Engl and Life Insurance Company, 501 Boylston Street, Boston, MA 02116