Financial Considerations of a Special Needs Divorce
Divorce is challenging, emotionally draining, and financially exhaustive. But few things are more demanding than going through a divorce when you have a child with special needs. Due to the unique stressors of these families, the divorce compounds the daily difficulties of parenting and caregiving for a special needs child.
While any disagreements that existed during a marriage may be exacerbated in the divorce process, often in special needs cases, parents are not in agreement with a diagnosis, level of severity, treatment, intervention, therapy, educational placement, medication, or the selection of providers assisting the special needs child. Financial disputes may arise affecting continuity of services, enrollments, payments to service providers, and therapeutic intervention may be jeopardized because of disagreement during divorce. These may have consequences resulting in wait lists, loss of providers, and delayed progress for the special needs child.
In special needs divorce, each parent is not only concerned about ensuring their own respective financial security after divorce, but usually those of their special needs child, albeit to varying degrees if there is disagreement. With special needs parenting requiring an order of magnitude of more concerns than affect most typical children, already drained parents find themselves in a highly complex planning situation. Special needs divorce financials usually require planning for their disabled child both during their minor years and through adulthood.
Expenses related to the disability affect child support, adult child support, division of assets, and trust and estate planning. In addition, without proper planning, these could negatively affect qualification for and continuance of government benefits for the child.
Child Support-Expenses and Add-ons
Guideline or basic child support is typically insufficient to cover special needs expenses. While health insurance benefits have improved over the past decade and now covers many therapies, medications, and interventions than in the past, there are still significant out-of-pocket costs associated with special needs. For example, for the treatment of autism, there are many unproven, nascent interventions that are still not recognized and reimbursed by insurance providers. There are also limitations and caps on what will be covered, frequency, and imposition of age limits. Exceeding the limitations covered by insurance or pursuing alternative treatments may be contested by a parent. These disputes may need to be decided in court or may be only be resolved through extensive legal correspondence, increasing the time and expense of divorce.
Often these out-of-pocket expenses have become part of the household monthly outlays and may not be recognized as additional expenses qualifying for additional child support. Because of the extensive costs, many states have statutory provisions (“add-ons”) that allow for increased child support for special needs. Child support “add-ons” in many jurisdictions that allows for reimbursement from the payor of child support for a percentage or all of these expenses. These needs may vary, but could include costly neuropsychological assessments, non-reimbursed therapies, interventions, medical and nutritional needs, specialty equipment, etc.). The custodial parent receiving child support should identify, track and document these expenses for additional temporary and permanent child support in special needs divorce.
Another critical element unique to special needs divorce is that because special needs may morph and new co-morbidities may develop, medical and related expenses are not static. It requires long-range thinking to thoughtfully extrapolate what the needs might be going forward and build, to the extent possible, contingencies into the marital settlement agreements to avoid future litigation. Since many courts maintain jurisdiction over child support which is always modifiable in most states, special needs expenses may become an even greater point of contention going forward, increasing the cost of the divorce exponentially because of disharmony.
Tax Implications: Credits and Deductions
There are also tax implications related to some of these outlays. Tax credits and deductions related to the disabled child affect not only the income available for support but net spendable income. Negotiating who pays for which expenses during and after the divorce are friction points not typically discussed in other divorce cases. Discussions and agreements around credits and deductions may impact other financial concerns of the divorce and should be considered in holistically in the settlement process. Following are a few examples of these tax elements.
There are several tax benefits available to parents of special needs children that should be considered in the divorce process.
Dependent care credit is available for disabled children of any age unlike the age 13 limitation for typical children. Determining which parent has the greater percentage of custody for the year among other qualifiers for this credit is important when considering income available for support or the supported party.
Another is the medical expense deduction. The amount of “medical expense” deductions that may be claimed and their ultimate tax impact is another consideration that affects divorce with special needs couples. While most families cannot take advantage of this deduction since the 2017 Tax Cuts and Jobs Act increased standard deductions, special needs families may be huge benefactors of this tax provision. Importantly, the definition of expenses that qualify for the medical expense deduction is broader than most realize. For special needs children, “medical” expenses include the following, but it is wise to get a physician’s note stating that these are required for the child:
· health insurance premiums paid
· therapy supplies
· medically required foods
· mileage to and from doctor appointments and therapy
· home modifications over the fair market value-added benefit to the home
· travel expenses and cost of a conference related to the diagnosis
· special school tuition/meals/lodging/tutors/transportation
· in-home caregivers, if the doctor requires it for the child
· special tutors
· and several other expenses.
Each parent may claim only the “medical” expenses that each separately paid because for purposes of this deduction, the child can be treated as a dependent of both parents if the child meets the dependency qualification. The tax advantage of this deduction is contingent upon the adjusted gross income of the taxpayer claiming the deduction and only if they itemize. Consequently, it may influence who will make decisions pertinent to the child and who will pay for each particular special needs medical expense possibly creating another point of friction in the divorce.
Minor’s Counsel
Another aspect of special needs divorce with a minor, are custody issues that may impact legal fees in an unusual way. There may be a greater likelihood of disagreement on the myriad of decisions surrounding special needs. Subsequently, the courts may appoint Minor’s Counsel to arbitrate these disputes, increasing the legal fees of the divorce. Besides the added legal expenses, such appointment may be especially difficult. Minor’s Counsel has a wide breadth of discretion and as arbitrator, may impact parental rights by making complex decisions without a background in special needs and without the knowledge and full understanding of the complexities of the child’s needs.
Adult Child Support
There are future financial considerations concerning reaching age of majority that are essential during the divorce process. Unlike typically developing children, child support and custody will not necessarily end at the age of majority for many special needs children. In some jurisdictions, adult child support is never awarded. In others, future adult child support cannot be awarded once the child ages out of the Family Court. In those states, it is prudent to plan for revisiting adult support before the child reaches age of majority, either through the settlement agreement or by preparing for the motion to come before the court well in advance of turning the age of majority. If parents are in concert about providing for the adult special needs child, it is obviously less stressful and less costly. They can build into the marital settlement agreement how the child will be supported once becoming an adult, even if it is not yet determined if the child will require supports for a lifetime. If they are not in agreement, this issue, because of the long-lasting lifetime expense, typically results in trial.
Even if parents agree on providing support, the extent to which each perceives is their obligation versus the other, or the government may be a point of contention. Often, parents disagree as to the quality of life and level of support they want to provide to the adult child with special needs. While it may be tempting for parents to plan to rely strictly on government benefits, these benefits are not guaranteed, are ever-changing, are partially state-specific, and are often insufficient to meet the needs of the adult child. The prospective reliance upon private versus governmental benefits and the consequential standard of living that may be afforded creates another complexity to manage in divorce with special needs.
A life care plan built on current and projected future expenses is essential in assessing the need for support. Critical to adult child support is providing adult child support in a way that maintains eligibility for government benefits. This is typically accomplished with specialized trust and estate planning which can provides for supplementing the quality of life without jeopardizing government benefits. Trusts may be set up to receive child support payments. Known as “First Party” or “Self-Settled” Special Needs Trusts, these trusts hold assets that belong to the adult with special needs. Any child support paid to an adult would need to be paid to this trust to help ensure that government benefits are not jeopardized. The Self-Settled Trust circumvents any “means tested” government benefit programs such as SSI and Medicaid while affording supplemental benefits that allow the adult to live more comfortably and enjoy pleasures of life such as vacations, entertainment and hobbies.
Trusts, ABLE Accounts
In addition to trusts, the IRS has enabled ABLE accounts to be established for the child with special needs, allowing for gifting annually to a maximum of $15,000 (2020) from all sources. This is another opportunity during the divorce process to plan and provide for the future financial needs of a child with special needs. The marital settlement agreement might include verbiage that requires one or both parents to contribute to the ABLE account to ensure there is funding going forward for their special needs child. The funds in the ABLE account are then used for qualified disability expenses which at this time is a broad definition.
Finances in special needs divorce also concerns government benefits. Because the government, through the Social Security Administration’s Supplemental Security Income, provides “basic” needs of shelter and food, there are strict regulations around the use of funds, including those in either a Supplemental Special Needs Trust (funded by third parties) or Self-Settled trusts. When dividing assets in divorce, it may be prudent to consider future housing options for an adult child with special needs. Because housing is a significant expense, this concern is especially important even years in advance of age of majority. Parents may decide to carve out and set aside assets just for the purpose of housing for the adult child, because government benefits have restrictions around the receipt of benefits when the adult child remains in the same household as parents (or others). Often the trade-off in government benefits is worth the betterment in living conditions for their child. Once again, these considerations make divorce with special needs more complex and unsettling because of the future uncertainties and unknowns that should be factored into the divorce equation in the moment.
Spousal Support- Impediment to Work
Finally, in special needs divorce, the custodial parent’s ability to earn an income may be severely limited and impeded by the care required for a special needs child. This is important not only while the child is a minor but, unique to special needs divorce, often remains relevant when the child becomes an adult. Often one parent assumes the role of primary caregiver. This role, while morphing in the adult years, is still significant and may affect the earnings capacity or career of the primary caregiver. The earnings impediment is a critical consideration in setting temporary and permanent spousal support for the custodial parent.
Divorce with special needs involves another layer of financial complexity often presenting a unique set of challenges throughout the divorce process. An understanding of the parents, the child, and how special needs impacts many facets of the process is critical in special needs divorce. Divorce experts who better understand the many nuances of legal, financial, schedule, roles, and even therapeutic implications, to some extent, can better advise and structure the many moving parts of the divorce process, as well as the financial implications and settlement to meet the family’s needs, especially those of the special needs child.
