Divorced Parents and Special Needs Financial Planning: Four Things You Should Know
Raising a child with a disability puts a lot of strain on a marriage. The ongoing challenges of medical, educational, financial, and caregiving can create a lot of tension between parents. Individual career demands and the needs of other children in the family may add up to ongoing stress.
Too often, marriages break up, and that disruption brings with it a fair amount of planning considerations. A divorce attorney will have to be knowledgeable about special needs financial planning in order to help couples protect their children with disabilities irrespective of their differences.
All couples with children have to deal with child custody and support, visitation, and property division. The lifelong care and expenses for a child with special needs adds complexity to the normal divorce planning. Unlike other children, parental responsibility for a child with a disability will not end at age 18 or upon graduating from college. The planning may need to involve a financial planner with expertise in special needs issues. The divorce attorney and estate planning attorney should also have a background in planning for children with special needs.
The following are categories to focus on when considering special needs financial planning and divorce. These include financial, legal, government benefits that a child may qualify for, and residential arrangements.
1. Sharing Custody and Caregiving
Divorced parents may not always live in the same geographical area. The school that the child attends becomes very important in determining where the child lives. In a majority of cases, the mother cares for the child with visitation from the father. Parents need to carefully lay out the division of responsibilities for the various medical appointments and therapies the child might need, the times the caring parent needs breaks, and caring during school breaks and holidays, among other issues.
When considering child support, factor in funding for special diets, child care, copayments and deductibles for health insurance, special equipment, transportation, vacations, and the like. Caregiving is often a full-time job and may not always allow the caregiving parent to have an independent, earned income. Determination of alimony and child support should take these factors into consideration.
2. Planning for Age 18 and Beyond
Several factors surface when the child with special needs becomes an adult. Do the parents need to become legal guardians of the child? If yes, will the parent who is the primary caregiver become the primary guardian? Will the child support continue beyond 18? (See rules about this under public benefits).
It is not always possible at the time of the divorce to predict the amount and cost of care. Revisiting the financial considerations may be an important clause of the divorce agreement.
At 18, the young adult with special needs will qualify for public benefits, such as SSI and Medicaid. Medicaid does not always cover all medical expenses. Continuation of the health insurance is important and is available through most employers. While a student can be a dependent on the parent’s health insurance until age 26, a dependent with a disability may continue as long as the parent is employed.
Once the adult child leaves school, other challenges may surface. Will he or she be capable of working? If not, will he or she need full-time care? When will the caregiving parent get a break? What should be the future residential options? Are other adult children trained to step up and help the caregiving parent?
3. Government Benefits
Public benefits are subject to income and asset ownership rules. Child support paid to the person with a disability may jeopardize eligibility for public benefits. Divorce attorneys do not always know how child support payments made directly to the custodial parent interact (negatively) with “means tested” government benefit programs like SSI and Medicaid.
In-kind alimony and/or child support should be considered in order to preserve government benefits. It is critical to address these issues during the divorce process. Parental financial support may be paid into a First Party Special Needs Trust (d4A Trust) or an ABLE account if available in the state of residence.
4. Estate and Financial Planning
Planning for the future of a child with a disability often involves the creation of a special needs trust coordinated with financial planning of the parents and other family members where applicable. Both parents will need to create legal documents naming guardians for minor children and a suggested guardian for the adult child with disability (it will need probate court approval). They should also create a special needs trust for the future benefit of the child with a disability with specific language to protect his or her eligibility for public benefits.
Naming the successor trustee for each parent is often a challenge, as the divorced parents may not have family members ready and prepared to care for the child with special needs. Other children in the family may not be old enough or experienced enough to step into the parents’ shoes. Each parent can create a special needs trust with provisions to have them merge in the future if the terms are identical. This will provide administrative ease for the trustees. They may also consider a single trust between them as a common special needs trust.
Appropriate financial planning for both parents is equally important. Financial security of the caregiving parent is critical. Adequate life insurance on both parents is the foundation of the basic financial planning: to replace the financial support lost due to untimely death of the financial support provider and also to pay for caregiving in the event of untimely death of the caregiver.
Planning for funding of the special needs trust requires careful consideration. Take into consideration the future needs of the individual with a disability as well as the affordability for both parents. Permanent life insurance on parents or grandparents offers the ability to create an asset through leveraging and the benefit of tax-free funds at death. Coordinate the special needs trust with grandparents from both sides.
Special needs financial planning is challenging under the best of circumstances. Divorced parents are often angry, bitter, tired, and worried about their own and their child’s future. Proper counseling and a team approach by all professionals involved will most likely provide the right planning solutions. Keeping the plan flexible and recognizing the importance of both parents' roles in the child’s life are essential to maintaining a healthy relationship in the family despite the differences between the parents.