August 28, 2014 at 7:24 AM
Divorce amongst older couples is on the rise due to spiraling medical/long-term care costs. Soaring medical/nursing care expenses are aggravated by longevity and uninsured risk (no long-term care insurance in place). Although unappetizing, divorce – when compared with alternatives -- may inflict the least amount of damage. When Medicaid finally steps in to cover an ill spouse, he or she will be guaranteed care to the end of life.
In my financial planning practice, I deal with the emotionally fraught issue of spiraling medical/long-term care costs. Counseling someone to consider divorce to stave off financial ruin is “difficult” -- to say the least. For the healthy spouse, this advice can feel profoundly wrong and immoral, despite the best intensions of well-meaning financial advisors and attorneys.
As a reminder, Medicare only covers up to 100 days of nursing care. If you and/or your spouse need nursing/long-term care, you either:
- Pay out of pocket (until your assets fall below a low threshold) and/or
- Tap into your long-term care insurance (if you have it).
If you don’t have long-term care insurance, you pay “out of pocket” until most of your assets are spent down and Medicaid steps in as a last resort. If you’re married, all liquid assets must be tapped – regardless of who’s name appears on the account – until most of your combined net worth is spent down. Only then does Medicaid (an aid-based program) step in.
Debbie and Glenn (names and circumstances are changed) show what can happen:
Debbie and Glenn are 72. This is a 2nd marriage for both. They got married 11 years ago, purchased a home together but kept their investment assets separate. Life was good until Debbie was diagnosed with Alzheimer’s Disease three years ago. Since then, Glenn has engaged personal caregivers to help Debbie every day and part of each night. Debbie’s assets were depleted two years ago and Glenn is drawing down his individual retirement savings to cover her care. Monthly caregiver bills now top $3,000/month.
Glenn engaged me to review his financial situation. I could see that Glenn was at risk of running down all remaining investment assets within 2 years since Debbie will move shortly to an Alzheimer’s unit in a nursing home. I considered a reverse mortgage, investing some of Glenn’s assets in a Medicaid-compliant annuity, etc. After consulting with an elder care attorney and divorce attorney on Glenn’s behalf, we concluded the best way to safeguard Glenn’s financial future and guarantee nursing care for Debbie is to divorce. The alternative is Glenn and Debbie remain married, he continues to tap his retirement nest egg and he risks having relatively little to cover his own medical and living expenses needs in the future. This is of particular concern since Glenn only is 72 and easily could live another 25+ years.
We explain to Glenn that a “paper divorce” won’t interfere with his responsibilities toward Debbie (e.g. overseeing and coordinating her care. Note: I am simplifying this example). Glenn understands the cold, dry logic of divorcing Debbie but he can’t shake the feeling he is betraying her and taking undue advantage of the system. Glenn remains on the fence but the clock continues to ticks away as he draws down his retirement nest egg to pay for Debbie’s care.
More and more Baby Boomers face mounting medical and nursing care expenses as this demographic ages. Advising a client to consider divorce may make financial sense but the emotional price tag is too heavy to bear for some people. I’m a strong proponent of long-term care insurance for many couples; I regret I didn’t know Glenn and Debbie years ago, when I could have recommended they secure long-term care insurance.
Eve Kaplan is a Fee-Only (no products sold) Certified Financial Planner® Practitioner with 30+ years of investment/planning experience. Kaplan Financial Advisors upholds the highest fiduciary standards in the planning industry. Eve opened Kaplan Financial Advisors 11 years ago to provide comprehensive financial planning and investment management services to single women and couples. Eve can be reached at 908-898-0549 or Eve@KaplanFinancialAdvisors.com. Visit her website at www.KaplanFinancialAdvisors.com
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