Are Lifetime Medical Insurance Benefits Subject to Equitable Distribution?

Once in a while I see a divorce action where one of the parties to the action is entitled to lifetime medical insurance benefits as a result of his/her employment.  For obvious reasons, such benefits may be of great value to one or both parties.  What happens if one of the parties makes an argument that such benefits are subject to equitable distribution?

In Henig v. Henig, 2010 N.Y. Slip. Op. 50546(U) (Sup. Ct. Nassay Co. 2010), the husband was a former New York City Police Officer who retired in 2007. Since his retirement on December 31, 2007, he has been entitled to and does receive lifetime medical, dental and vision benefits for himself, wife, and the parties’ children.  Wife argued that the medical insurance is a marital asset and subject to Equitable Distribution, and/or equals a benefit to be included in determining husband’s income.

Wife argued that the Domestic Relations Law contemplates an expansive view of marital property and analogized the lifetime health benefits to a pension insofar as such benefits are an asset, received only upon retirement.   She claimed that husband’s rights to the coverage matured as of his retirement, and Wife has rights independent of the husband, i.e., if there were no divorce and husband were to die, Wife and children would still receive benefits.

While wife made that argument, however, her lawyer had not submitted any documentary evidence, specific to the plan, to substantiate these claims.   Wife’s attorney also argued that lifetime benefits, like a pension, are contractual rights, which have some value because they are received in lieu of higher compensation, which husband would have earned otherwise, however, wife’s counsel again provided no proof to substantiate this claim.

Husband argued that since enactment of DRL §236 B, neither the Court of Appeals nor the four appellate divisions have held that employee-subsidized health insurance benefits are marital property subject to Equitable Distribution.  In fact, in contemplation of the loss of such health benefits, DRL§255(a) directly addresses the issue stating that ” once a judgment is signed a party there to may or may not be eligible to be covered under the other party’s health insurance plan.” Husband’s lawyer also argued that amendments to DRL§236(B) provide that loss of health insurance benefits upon dissolution of marriage are factors that a court must consider for the purposes of determining maintenance and Equitable Distribution, but that such benefits are not itself an asset, and if the Legislature intended that such benefits be included in the definition of marital asset, it would have done so as it has amended and modified other provisions concerning health insurance.

Husband further argued that wife may elect continuation of coverage under a COBRA option, or she could obtain her own health insurance benefits through full-time employment, the cost of which is a consideration in her support award, if any.  Wife’s available remedy through the election of COBRA coverage would ensure the avoidance of any possible double-dipping by ordering the husband, to pay for her health insurance.  Husband’s counsel, however, has not submitted any proof of the availability of a COBRA option to wife upon dissolution of the marriage, nor was there any proof presented with as to wife’s ability to obtain benefits through employment.

As far as the health insurance benefits themselves, the husband currently pays $15.32 per month for such benefits and an annual deductible $300.00.  The continuation of the benefits is at a continued cost to husband, and his failure to make such payments will result in the cessation of such benefits.  In further support of the proposition that lifetime health benefits are not defined like a pension, husband’s lawyer asserted that wife has already received her marital portion of the insurance having enjoyed its benefits during the marriage, and even the period after husband’s retirement and until such time that the Judgment of Divorce is entered.  Furthermore, he argued that upon divorce Husband will pay the monthly premium from his separate property, and continuation of the health insurance policy is conditioned upon payments made from separate property and therefore any marital right to the insurance terminates upon divorce.

Wife’s divorce attorney cited Walek v. Walek, 193 Misc 2d 241 (Sup. Ct. Erie Co. 2002), where the trial court held that health insurance benefits were a marital asset and subject to Equitable Distribution. The court in Henig found that case distinguishable since in Walek, the husband used a portion of his sick time, which could have been paid to him directly, to fund the 10% required premium payment necessary to receive those post-retirement, lifetime benefits.  The sick time had a value, which was arguably marital property, which marital property was then used to directly fund those lifetime benefits.

Section 255 of the Domestic Relations Law states in pertinent part that:

A court, prior to signing a judgment of divorce or separation, or a judgment annulling a marriage or declaring the nullity of a void marriage, shall ensure that:

1. Both parties have been notified, at such time and by such means as the court shall determine, that once the judgment is signed, a party thereto may or may not be eligible to be covered under the other party’s health insurance plan, depending on the terms of the plan.
2. If the parties have entered into a stipulation of settlement/agreement on or after the effective date of this section resolving all of the issues between the parties, such settlement/agreement entered into between the parties shall contain a provision relating to the health care coverage of each party; and that such provision shall either: (a) provide for the future coverage of each party, or (b) state that each party is aware that he or she will no longer be covered by the other party’s health insurance plan and that each party shall be responsible for his or her own health insurance coverage, and may be entitled to purchase health insurance on his or her own through a COBRA option, if available.
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Section 236 B(6) of the Domestic Relations Law states in pertinent part that:

In determining the amount and duration of maintenance the court shall consider:

(11) the loss of health insurance benefits upon dissolution of the marriage; and
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The trial court held that the threshold question was whether the lifetime health benefits constituted property and the wife has failed to submit proof establishing this.  Even if it were to be deemed property, wife has failed to provide the court with a sufficient showing to justify classifying such benefits are “marital property” or that  the post-retirement lifetime benefits involved a reduction in husband’s earned wages in order to obtain such benefits or that these lifetime benefits are provided through the employer utilizing funds set aside from a portion of the husband’s income earned through his employment.  She did not allege that husband had an opportunity to “opt out” of such benefits in exchange for higher wages.

Additionally, the argument with respect to the de minimus amount husband is required to pay for the continued health insurance and that husband’s cost for such comparable medical benefits pales in comparison to that which it would cost wife was not persuasive.  Even if this argument were accepted, the loss of benefits for one spouse has been contemplated by the Legislature in its amendment to the Domestic Relations Law to include the loss of health insurance benefits in the determination of maintenance.  Although wife’s attorney argued that such savings for Husband constitutes an asset to which Wife contributed, this argument did not persuade the court.

What is the final lesson of Henig?  I agree with the court that the health benefits are not marital property as contemplated by the Domestic Relations Law.  Furthermore, it was the intent of the Legislature to exclude such benefits from the totality of marital assets, as evidenced by the amendments to the Domestic Relations Law that specifically ensure that such loss of benefits by a spouse post-judgment is a consideration in the determination of maintenance, as well the recent language adopted to ensure that all parties are aware of the possibility of loss of such health benefits.  Wife was not left without a remedy, since the future cost of health benefits is a consideration for any award of maintenance and Equitable Distribution.

Domestic Relations Law §255, Settlement Agreements and Judgments of Divorce

On October 9, 2009, Domestic Relations Law §255 will become effective.  DRL §255 is a replacement of DRL §177 which required:

1. Prior to accepting and entering as a judgment any stipulated agreement between the parties in the action for divorce, the judge shall insure that there is a provision in such agreement relating to health care of each individual.  Such statement shall either (a) provide for the future coverage of the individual; or (b) state that the individual is aware that he or she will no longer be covered by his or her spouse’s health insurance plan and that the individual will be responsible for his or her own health insurance coverage. Every agreement accepted by the court must contain the following statement, signed by each party, to ensure that the provisions of this subdivision are adhered to:

I, (spouse), fully understand that upon the entrance of this divorce agreement, I may no longer be allowed to receive health coverage under my former spouse’s health insurance plan. I may be entitled to purchase health insurance on my own through a COBRA plan, if available, otherwise I may be required to secure my own health insurance.

(Spouse’s signature) (Date)

2. Prior to rendering a decision in an action for divorce, the judge shall ensure that he or she notifies both parties that once the judgment is entered, a person may or may not be eligible to be covered under his or her spouse’s health insurance plan, depending on the terms of the plan. If, prior to accepting an agreement and entering the judgment thereon, the judge determines that the provisions of this section have not been met, the judge shall require the parties to comply with the provisions of subdivision one of this section and may grant a thirty day continuance to afford the parties an opportunity to procure their own health insurance coverage.

DRL§177 has been repealed to resolve the numerous practical problems it presented to the litigants.  Typical problems involved modifying previously executed separation and property settlement agreements.  Its replacement, DRL §255 provides as follows:

A Court, prior to signing a judgment of divorce or separation, or a judgment annulling a marriage or declaring the nullity of a void marriage, shall ensure that:

1. Both parties have been notified, at such time and by such means as the Court shall determine, that once the Judgment is signed, a party thereto may or may not be eligible to be covered under the other party’s health insurance plan, depending on the terms of the plan. Provided, however, service upon the defendant, simultaneous with the service of the summons, of a notice indicating that once the judgment is signed, a party thereto may or may not be eligible to be covered under the other party’s health insurance plan depending on the terms of the plan, shall be deemed sufficient notice to a defaulting defendant.

2. If the parties have entered into Stipulation of Settlement/Agreement on or after the effective date of this section resolving all of the issues between the parties, such settlement/agreement entered into between the parties shall contain a provision relating to the health care coverage of each party; and that such provision shall either (A) provide for the future coverage of each party, or (B) state that each party is aware that he or she will no longer be covered by the other party’s health insurance plan and that each party shall be responsible for his or her own health insurance coverage, and may be entitled to purchase health insurance on his or her own through a COBRA option, if available. The requirements of this subdivision shall not be waived by either party or counsel and, in the event it is not complied with, the Court shall require compliance and may grant a thirty-day continuance to afford the parties an opportunity to procure their own health insurance coverage.

As a result of its enactment, this section of the Domestic Relations Law will give judges greater discretion in insuring the time and method of notification of health insurance provisions and will eliminate DRL §177′ mandatory language, and replace with several different options that provide notification of the parties with respect to their health care coverage.   As stated in the Legislative Memorandum:

In sum, this measure should guarantee the most efficient processing of divorce actions while achieving section 177’s original objective, viz., to insure an awareness of the impact of divorce proceedings upon health insurance coverage, at less cost to and with fewer complications for the divorce litigants the statute sought to protect.

Divorce attorneys will have a greater degree of flexibility in providing appropriate notification during the course of divorce and that will certainly benefit their clients.

Equitable Distribution, Maintenance and Health Insurance – Upcoming Changes in the Domestic Relations Law

I am asked frequently what happens to health insurance as a result of divorce.  My usual response is that once the judgment of divorce is entered, if you were receiving health insurance benefits through your spouse, you will lose your right to receiving this coverage in the future, unless you elect to receive COBRA coverage.

In fact, the disclosure of the above facts has been formalized in Domestic Relations Law §177 which provides that prior to accepting and entering as a judgement any stipulated agreement between the parties in an action for divorce, the judge shall ensure that there is a  provision  in  such agreement  relating to the health care coverage of each individual. Such statement shall either (a) provide for the future coverage of the individual; or (b) state that the individual is aware that he or she will no longer be covered by his or her spouse’s health  insurance plan and that the individual will be responsible for his or her own health insurance coverage. Every agreement accepted by the court  must  contain a specific statement, signed by each party, to ensure that the provisions of this subdivision are adhered to.

At the same time, since in most situations the health insurance is tied to one or both spouses’ employment, the Domestic Relations Law did not provide any formal way to include the loss of health insurance coverage into either maintenance or equitable distribution calculations.  This is about to change.  Effective September 21, 2009, an additional subsection of Domestic Relations Law §236 will be going into effect and will require the trial court to consider the loss of health insurance coverage as a factor in fashioning equitable distribution and maintenance awards.  Specifically, the new statute will provide as follows:

AN ACT to amend the domestic relations law, in relation  to  maintenance

and equitable distribution of marital property

THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-

BLY, DO ENACT AS FOLLOWS:

1    Section 1.  Subparagraphs 5, 6, 7, 8, 9, 10, 11, 12 and  13  of  para-

2  graph  d  of  subdivision  5  of  part  B of section 236 of the domestic

3  relations law, subparagraph 13 as renumbered by chapter 884 of the  laws

4  of 1986, are renumbered subparagraphs 6, 7, 8, 9, 10, 11, 12, 13 and 14,

5  and a new subparagraph 5 is added to read as follows:

6    (5)  THE  LOSS  OF  HEALTH  INSURANCE BENEFITS UPON DISSOLUTION OF THE

7  MARRIAGE;

8    S 2. Subparagraph 10 of paragraph a of subdivision  6  of  part  B  of

9  section  236 of the domestic relations law, as amended by chapter 884 of

10  the laws of 1986, is amended to read as follows:

11    (10) any transfer or encumbrance made in contemplation of a matrimoni-

12  al action without fair consideration; [and]

13    S 3. Subparagraph 11 of paragraph a of subdivision  6  of  part  B  of

14  section  236 of the domestic relations law is renumbered subparagraph 12

15  and a new subparagraph 11 is added to read as follows:

16    (11) THE LOSS OF HEALTH INSURANCE BENEFITS  UPON  DISSOLUTION  OF  THE

17  MARRIAGE; AND

18    S  4.  This  act  shall take effect on the sixtieth day after it shall

19  have become a law and shall apply to any action or proceeding  commenced

20  on or after such effective date.

EXPLANATION–Matter in ITALICS (underscored) is new; matter in brackets

[ ] is old law to be omitted.

The bill memo provided the following justification for the bill:

The Equitable Distribution and Maintenance factors have not been updated much since their introduction close to 30 years ago.  While loss of health insurance was not one of the factors added at the time, in light of the health care crisis and rising costs of access to health insurance, loss of health insurance is a critical factor that should be considered by courts in making determinations relating to equitable  distribution and maintenance. The impact of a divorce can be challenging for families and the added loss of health insurance can be financially devastating. The proposal in this bill, to add loss of health insurance as a factor to be considered for equitable distribution and maintenance determinations, is essential to address the realities of our current times. This legislation is intended to promote the health, safety and financial stability of the parties post divorce.

I believe that the above will be a helpful addition to the Domestic Relations Law since, as a divorce lawyer, I have dealt frequently with situations where the parties who wanted to be divorced could not do so, solely due to the fact that the loss of health insurance coverage would be devastating to one of the parties. In those situations, I have counseled clients to enter into separation agreements and the parties would live pursuant to such agreements without getting divorced for very significant periods of time.  This allowed for retention of employer provided health care coverage.  While I am happy to see the changes to the Domestic Relations Law §236, at the same time, this provision may be a paper tiger primarily due to the cost of obtaining health insurance coverage on the open market.

As a result of the new provisions, divorce attorneys will have to carefully review the issues related to their clients’ health insurance coverage, the availability of replacement coverage and its costs, and the likely impact of those issues on maintenance and equitable distribution.

I should note one more thing related to the issues discussed above.  Effective on October 11, 2009, Domestic Relations Law § 177 has been repealed, and replaced by Domestic Relations Law §255. The new statute, while mostly similar, adds additional procedural requirements that need to be complied with, sometimes as early as the time of service. Domestic Relations Law §255, subdivision 1 provides that prior to signing a judgment of divorce or separation, or a judgment annulling a marriage or declaring the nullity of a void marriage, the court must ensure that both parties have been notified, at such time and by such means as the court determines, that once the judgment is signed, a party thereto may or may not be eligible to be covered under the other party’s health insurance plan, depending on the terms of the plan. In the case of a defaulting defendant, service upon the defendant, simultaneous with the service of the summons, of a notice indicating that once the judgment is signed, a party thereto may or may not be eligible to be covered under the other party’s health insurance plan, depending on the terms of the plan, shall be deemed sufficient notice to a defaulting defendant.

Domestic Relations Law §255, subdivision 2 provides that if the parties have entered into a stipulation of settlement or agreement, on or after its effective date, resolving all of the issues between the parties, the stipulation of settlement or agreement must contain a provision relating to the health care coverage of each party. The provision must either: (a) provide for the future coverage of each party, or (b) state that each party is aware that he or she will no longer be covered by the other party’s health insurance plan and that each party shall be responsible for his or her own health insurance coverage, and may be entitled to purchase health insurance on his or her own through a COBRA option, if available. The requirements subdivision 2 may not be waived by either party or counsel. In the event that it is not complied with, the court must require compliance and may grant a thirty day continuance to afford the parties an opportunity to procure their own health insurance coverage.