Health Savings Accounts & Divorce
Many of our clients use health savings accounts (HSAs) to save money on a tax-free basis for future health care expenses. For our clients who have had few medical crises, their HSAs can carry large balances. When it comes time for divorce, the HSA might be an attractive asset that spouses fight over.
Generally, HSAs are treated like all other assets in divorce. Meet with a Media property division attorney if you have questions about whether you can exit the marriage with the account.
How Health Savings Accounts Work
Congress created HSAs to incentivize saving for medical expenses. They work like this: a person sets up an account and either they or their employer contributes money on a pre-tax basis. The account holder invests the funds much like the owner of an Individual Retirement Account would, and any returns accumulate tax-free. Any unused funds roll over to the next year.
When the account holder makes a withdrawal, the withdrawal is also tax free if used for qualifying medical expenses. A person can only set up an HSA if they have a high-deductible health insurance plan.
Dividing Your Health Savings Account
For divorce purposes, HSAs are treated very much like retirement accounts. Contributions into the account while married will be treated as marital property, which means at least some of the value in the HSA will be considered marital. When dividing assets, all marital property gets put into a pot and then divvied up.
Depending on the assets you have, it is entirely possible that you won’t need to divide the account even if some or all of it is deemed marital. For example, if the account has $10,000 in it, your spouse could get other marital assets. If the HSA needs to be divided or transferred, your spouse can pick a new administrator and decide how to invest their funds.
Problems During Divorce
HSAs can be problematic to deal with in a divorce. As an example: you might be required to keep your spouse on your health insurance for a length of time after divorcing.
Once you obtain your divorce decree, however, you can’t necessarily dip into the HSA to pay for any medical treatment that your ex-spouse received. If you do, the withdrawal will be treated like regular income and you might need to pay a penalty depending on your age.
Your Account after Divorce
If you are keeping the account, you should also review the beneficiary designation. This is the person who will receive the account upon your death if there are any funds still in it. Chances are, you had your spouse down as the beneficiary, so most clients move to change that designation after divorce Remember, these accounts do not pass through a will, so the beneficiary designation is how you leave the account to someone.
You also should consider the tax implications of who you leave it to. Spouses can inherit a health savings account tax-free, but the same is not true of your children.
Our Delaware county Divorce Lawyers Are Here to Help
Barbara Flum Stein & Associates can discuss which assets to seek in a divorce and come up with a strategy that lets you exit your marriage on sound financial footing. Contact us today to talk with a lawyer.