by Theresa M. Varnet, M.S.W., J.D.
There have been a number of studies that show that when a spouse becomes disabled or if there is a child with special needs born to the family, the likelihood of a divorce increases substantially. Some studies indicate a divorce rate as high as 86%. Nearly one out of ten families have an immediate family member challenged with a disability. Despite these statistics, family law attorneys seldom give thought to how the receipt of alimony and/or child support will affect the disabled spouse’s or disabled child’s eligibility for needs based government benefits such as SSI and Medicaid.
The duty and obligation of a parent to care for his or her children does not necessarily end when the child reaches a certain age. When a party in a divorce action has a disability or has a child with a disability who is receiving Supplemental Security Income (SSI) and/or Medicaid or who may need these benefits in the future, the divorce agreement needs to be structured so that the divorcing spouse or child of the marriage is not left in a worse off position due to the receipt of alimony or child support.
Alimony paid to a spouse who is disabled counts as unearned income and may render the spouse totally ineligible for critically needed government benefits including Medicaid, SSI, in home supports and services and residential placement if needed.
Child support is treated differently than alimony. Assuming the family income is below the family income allowance for SSI, child support to the custodial parent, while the child is under the age of 18, will reduce the child’s SSI check by as much as one-third. However, once the child reaches the age of 18, the receipt of cash child support is deemed as unearned income and will result in a dollar for dollar loss in SSI. If the child support paid is greater than the current maximum SSI payment ($721 in 2014), the adult child will not only lose his or her eligibility for SSI but may lose eligibility for Medicaid. Medicaid is critical when an adult disabled child ages out of the public school system. Medicaid is the “ticket” for adult services. “No Medicaid” means “no services” in most states.
Alternate forms of payments for child support or alimony should be considered as some payments are not deemed or counted by SSA in determining eligibility for SSI and Medicaid. Rather than pay child support or alimony in the form of cash, the non custodial parent or ex-spouse could pay directly for goods and services such as after school child care, additional therapies, private school tuition, automobile expenses (such as car payments, car repairs, insurance and gasoline), housekeeping services, additional Personal Care Attendant hours, telephone, cable TV or internet.
Another option is for the divorce settlement agreement to assign all child support or alimony payments to a Qualified Special Needs Trust. A Qualified Special Needs Trust sometimes called a ‘payback trust’, OBRA’93 Trust, D4(A) or D4(C) trust is different than the typical third party special needs trust parents often use to provide for a special needs child in their will or living trust. Not all persons with disabilities can use a Qualified Special Needs Trust. To establish a qualified special needs trust, the person must meet the definition of “disabled’ under SSA rules (42 U.S.C. Sec. 1382c(a)(3)). For those for whom the Qualified Special Needs Trust is appropriate, it may allow a greater flexibility in structuring a divorce settlement agreement so that the spouse with a disability or adult disabled child can better protect assets and income and enjoy a better quality of life.Many family law attorneys are not familiar with a Qualified Special Needs Trust. Lawyers drafting these trusts require knowledge in trust law, tax law, Medicaid law and guardianship law. All parties in a divorce who are challenged with a disability or who have a child with a disability should ask their family law attorney to consult with an attorney who is familiar with this special needs planning option.