Marriage Is a Partnership

Recently, the Superior Court of New Jersey, Appellate Division, issued an interesting decision concerning New Jersey’s Medicaid program.  Medicaid is a health payment plan for needy individuals.  In order to qualify for Medicaid, an individual must have a very limited amount of assets and insufficient income to pay for his care.  If a person qualifies for Medicaid, the program will pay for many of the costs associated with long-term care.

I have been helping my clients qualify for Medicaid benefits for over twenty years now.  I have helped hundreds, if not over a thousand, clients qualify for Medicaid benefits.

Most of my clients never thought they would have to qualify for Medicaid, a welfare program, but faced with the cost of long-term care, which can cost in excess of $12,000 a month, most of my clients find themselves unable to sustain the payment for their care.  The client comes to me hoping to preserve a portion of their assets for their family.

When dealing with a married couple, the Medicaid program treats the couple as one economic unit.  Whatever one spouse owns, the other owns.  This fact often surprises my clients.  Many spouses believe that if the assets are just in their name, those assets belong to her and cannot be used to pay for her spouse’s care.  This is wholly untrue.  Marriage is a partnership, and like most partnerships, what one partners owns the other owns.

The Medicaid program will permit the well-spouse, called the “community spouse,” to retain certain assets, such as the house, a car, and a certain amount of cash assets, but the community spouse cannot simply retain all the assets that are in her name.  In order for the ill-spouse, called the “institutionalized spouse,” to qualify for Medicaid, the couple must spend down all the assets in excess of the amount of assets that the Medicaid program permits the community spouse to retain.

The Medicaid program also punishes Medicaid applicants who have gifted assets in the five-year period immediately preceding the date of application.  This concept is commonly called the “lookback period.”  If an applicant, or his spouse, gave away an asset during the lookback period, then the applicant will be ineligible for Medicaid benefits for a period of time.  Essentially, for every $11,000 that the community spouse or institutionalized spouse gifted during the lookback period results in one month of ineligibility for Medicaid benefits.  The period of ineligibility for Medicaid is called a “penalty period.”

While the lookback period is only five years, a penalty period can be unlimited in duration.  For instance, if the two spouses gave away $1,100,000 during the lookback period, then the institutionalized spouse would be ineligible for about 100 months, which is longer than five years.  But if the spouses gave away $1,100,000 and waited until five years had elapsed since the gift to apply for benefits, then the Medicaid program could not punish the institutionalized spouse for the gift because it would be outside the lookback period.  If all the gifts made during the lookback period are returned, then the penalty period can be eliminated.

In this most recent case, the husband and wife gave their daughter about $435,000 in cash.  The daughter used the money to buy a house in the daughter’s name.  The husband and wife moved into the house.  Years later, when the husband needed care in a nursing home, the daughter transferred the house to the wife’s name alone.  The house was worth $435,000.

Medicaid took the position that because the husband and wife gifted $435,000 in cash and because the daughter returned a house to only one spouse—even though the house was worth $435,000—that the daughter did not return the same amount to the same people who made the gift; accordingly, Medicaid could still assess a penalty period against the husband.

The court held that since the couple is one economic unit, returning the asset to one spouse is the same as returning the assets to both spouses.  The court also held that returning assets of equivalent value, the house, is the same as returning the cash.