Going through a divorce can be a stressful experience, and some items may be overlooked. Nevertheless, if you are in this situation, be sure to pay attention to future health insurance. Medical bills and health insurance premiums can be extremely expensive; any lapse in coverage could lead to a financial crisis.
The fine points of paying for health insurance after a divorce will vary by your specific circumstances, including the terms of current coverage and state law. That said, here is general advice to help you during the process.
For covered employees
In many families, Spouse A and Spouse B are married; the health insurance is provided through a group plan from Spouse A’s employer. If you are Spouse A, you should notify the appropriate person at your company when divorce proceedings are initiated. Removing Spouse B from the coverage may save you money by lowering your insurance premiums, even if you continue to carry children on the policy.
While it is possible your spouse may ask you to continue his or her coverage, that is probably not feasible. After a divorce, your ex-spouse generally will not qualify for family coverage on your plan.
Disconnected from family coverage, Spouse B might request that you pay the premiums for ongoing health insurance as part of the divorce negotiation. If possible, see if that amount can be included in an alimony agreement because alimony you pay will be tax deductible.
For covered spouses
On the other hand, you might be Spouse B, covered by health insurance from Spouse A’s workplace. After a divorce, you likely will lose that coverage, so you will not have health insurance once final.
If you are employed and work for a company with a health plan, you can go onto that plan. However, without such an opportunity, your best choice might be to rely on the Consolidated Omnibus Budget Reconciliation Act, known as COBRA.
COBRA, a federal law, requires companies with 20 or more employees to continue group health insurance to certain parties, including divorced spouses. Many states have similar laws covering firms with fewer employees.
However, COBRA has certain drawbacks. You will have to pay premiums calculated at 102 percent of the plan’s cost, which will probably be much more expensive than the often-subsidized group coverage provided to employees. Beyond cost, COBRA for ex-spouses will last no more than 36 months. After that, you will have to supply your own health insurance.
Even with these concerns, COBRA can be a worthwhile option while you seek coverage of your own. To qualify, you must notify the administrator of the group plan within 60 days of being divorced. Once on COBRA, you can take time to seek alternative health insurance, perhaps via the Affordable Care Act exchanges.
You should retain a knowledgeable attorney to help you negotiate the terms of a divorce, and that advice should cover future health insurance—whether you are Spouse A or Spouse B. Maintaining coverage is vital. Our office can help you and your counsel work out a tax-efficient agreement.
Trusted advice: taxes & divorce
- If you pay alimony under a divorce or separation agreement, you may be able to deduct the payments, as long as they qualify as alimony for federal tax purposes
- Among several requirements, for payments to be considered alimony, the divorce or separation agreement must require the payments be made, & there must be no liability to make any payments for any period after the recipient spouse’s death
- If you get alimony from your spouse or former spouse, you must report the payments as taxable income
- If you pay child support, those payments are not deductible
- If you receive child support, the money you receive does not have to be reported as taxable income