By FPA Members Elaine King, CFP®, CDFA™ and Philip Herzberg, CFP®, MSF
Last Updated: December 5, 2011
With effective financial planning during divorce for your special needs children, you can handle unique concerns and help promote the future quality of life for your family.
With the expertise of attorneys and credentialed financial planners, you can meet long-term cash flow needs, and implement specific strategies to protect current and future qualification of your special needs child for government programs. Further, you can peruse relevant federal law and your state support provisions to adequately address how your divorce will impact the eligibility for public benefits received by your child with a disability.
Apply the following special planning needs considerations during your divorce to enhance your family’s standard of living and well-being.
Devise an encompassing special needs plan and trust during your divorce to provide long-term financial security.
- Compile an overview of your family’s financial profile to develop a plan that fits your special needs situation. With the guidance of a family attorney and financial professional, you can evaluate your budget by taking inventory of your current income and expenses, as well as existing assets. Refine present spending practices and provide ongoing cash flow to achieve near-term desires and plan for future savings.
- Research government and community resources, such as Special Needs Alliance, to become acquainted with your particular financial, medical, and educational needs. If applicable, select an estate planning or elder law attorney with expertise in special needs to prepare and execute a plan for your disabled child’s care. Also, have a tax practitioner work alongside your special needs professionals to help you determine how to maximize deductions without compromising your financial and estate plans.
- Create a discretionary Special Needs Trust (SNT) to supplement, but not replace, government benefits through programs such as Supplemental Security Income (SSI) and Medicaid. Simultaneously, you can maintain financial and medical stability by presenting private assets in a qualifying trust to provide for an array of non-public services and equipment (i.e. special wheelchairs and personal attendants).
- Name a financially capable and responsible trustee to invest assets, establish accounts, and pay for your child’s special needs expenses. Choose a trustee and successors who have intimate knowledge of your family’s divorce situation and can communicate the SNT’s existence to family and friends to avoid disqualifying gifts. In addition, after executing the estate plan, you should obtain written confirmation of new beneficiary designations for all accounts.
How can you divide SNT funding amongst all your kids if one child has special needs? Project educational expenses and estimate the cost of each child’s care over his or her lifespan to determine how much of you and your divorcing spouse’s estate to allocate to your child’s SNT. Be cognizant that any kind of property or life insurance can fund this irrevocable SNT.
Properly structure your divorce agreement to preserve resources, income and public benefits.
- Coordinate divorce agreement needs so that your disabled child does not lose eligibility for SSI, Medicaid, or other special needs-based benefits. Recognize that the divorce agreement typically delineates how you and your divorcing spouse will share in the financial responsibility for your child’s care and education until your child reaches the age of majority or completes college. Be wary that SSI and Medicaid can be impacted if the custodial parent receives alimony or child support money for the benefit of your special needs child.
- Protect government benefits by including provisions in your divorce for the noncustodial parent to make child support payments to a SNT for the sole benefit of your child. Alternatively, as a custodial parent, you can supplement SSI by making an irrevocable assignment of child support to the SNT. Review Social Security regulations concerning SSI and understand that the SSI program provides a basic monthly cash subsidy for disabled individuals who have limited countable assets and income.
- Should you receive alimony in the form of a monthly cash payment as a custodial parent, know that SSI will include the amount of this income in figuring out family income allowance. Do not count cash alimony as income for SSI purposes if you are a custodial parent with a special needs child who is 18 years or older.
- Conversely, realize that the receipt of cash child support will be treated as unearned income once your disabled child reaches the age of 18. With child support in excess of the $20 unearned income limit, you should plan ahead to preserve qualification for critically-needed government benefits. Remember to apply your state’s laws relating to alimony, child support, and Medicaid regulations to your divorce.
Utilize these perspectives to facilitate financial decision-making and find solutions to care for your special needs child during divorce.
With the suitable use of a SNT during your divorce, you can plan for the best interests of your disabled child, and ultimately foster a greater measure of self-sufficiency.
FPA member Elaine King, CFP®, CDFA™, is Managing Director at The Lubitz Financial Group in Miami, FL. FPA member Philip Herzberg, CFP®, MSF, is Director of Media Relations & Public Awareness for FPA of Miami-Dade and FPA of Florida.