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Obamacare could be a game-changer in over-50 divorce, alimony

When people over 50 get divorced, one of the most pressing issues is often the cost of health insurance. Not only do insurers charge more overall when married couples transition into separate households, but it can also be prohibitively expensive -- or even impossible -- for older non-working spouses to get coverage. These factors come down especially hard on women who have mostly worked at home and may have developed preexisting conditions by the time they reach middle age.

A recent study by the National Bureau of Economic Research found that single people overall tend to lag behind married couples in their retirement savings. And, a University of Michigan study last year found that around 115,000 women lose their health insurance every year due to divorce.

Unfortunately, traditional options for these women have been drying up. COBRA insurance through their ex-spouses’ insurance exists, but it’s often unaffordable and is typically limited to 36 months. Some couples had been opting for legal separation to keep their employer-sponsored insurance, but many employers are now refusing to cover separated spouses. Other couples have even waited to divorce until they reach 65 and can get Medicare.

If the Affordable Care Act is implemented, it could have an enormous impact in this area. The Associated Press says that both over-50 divorcees and women in general are likely to see substantial savings on health insurance under the ACA. Insurers will no longer be able to deny coverage, or charge more, due to preexisting conditions and health insurance will no longer be tied to the workplace.

On top of the greater access and lower insurance costs projected under the ACA, the law also provides income-based subsidies on a sliding scale. Those subsidies, one matrimonial lawyer pointed out, are likely to have a game-changing impact on alimony, since health insurance is already a factor in its determination.

Since alimony is considered taxable income to the recipient but tax-deductible for the payer, the calculation of any subsidy through the ACA could be interesting. If the recipient qualifies for a subsidy, the amount of alimony ordered might be lower. For payers, the cost of alimony might reduce their income to the point that they, too, qualify for subsidies. These interactions could create some complex calculations for judges, and policymakers may have to clarify how alimony should be considered for the purpose of ACA subsidies.

Source: The Wall Street Journal’s MarketWatch, "Obamacare could ease divorce’s financial sting," Elizabeth O'Brien, Sept. 25, 2013

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