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W.T. v. Division of Medical Assistance and Health Services

March 1, 2007


On appeal from a Final Agency Decision of the Division of Medical Assistance and Health Services, HMA-877104.

The opinion of the court was delivered by: Collester, J.A.D.



Submitted June 6, 2006

Before Judges Coburn, Collester and S.L. Reisner.

This case involves the effect of an unequal distribution of marital assets between spouses under a property settlement agreement (PSA) incorporated into a judgment of divorce on an institutionalized applicant's qualification for Medicaid benefits. The appeal is taken from the final administrative decision of the New Jersey Department of Human Services Division of Medical Assistance and Health Services (DMAHS) upholding the assessment by the Ocean County Board of Social Services (OCBSS) of a penalty delaying the effective date of W.T.'s participation in the Medicaid program. The twenty-two month delay was applied because of his acceptance of an unequal division of marital assets in the PSA within three years of his Medicaid application.*fn1

The facts are undisputed. W.T. and M.T. were married on June 9, 1962, and raised two children. W.T. was an accountant and the primary source of income for the family. In 1998 he was earning a salary of $85,000 as a manager for AT&T. He elected to retire at age fifty-eight by accepting an early retirement buyout package amounting to more than $450,000, much of which he invested in an IRA. In retirement he worked part-time for H&R Block during tax season while M.T., then age fifty-six, worked as a manager in the food service industry with an annual salary of approximately $35,000. At the time of divorce, both children were emancipated. M.T. and W.T. sold their home realizing a net profit of about $130,000 and planned to use the proceeds to purchase another home.

On December 21, 1999, W.T. received the first of a planned series of epidural injections recommended to alleviate his chronic neck and shoulder pain. Within hours, terrible things began to happen. The following morning he was unable to walk. He was rushed to the hospital and placed in intensive care, but the paralysis spread upward. By the following day W.T. was a permanent quadriplegic, breathing only with the aid of a respirator. His prognosis was grave.

After eleven weeks in the hospital, W.T. was taken to a nursing home for rehabilitation. After he was discharged in June 2000, M.T. quit her job to devote herself to his full-time care. However, within a short time he became very ill and was returned to the hospital where he remained in a coma for two weeks. After he regained consciousness, W.T. discussed with M.T. his need for constant nursing care, and they agreed to search for a suitable nursing home. Shortly thereafter, he became a resident of the Barnegat Nursing Home in Ocean County where it was clear he would reside for the rest of his life.

Since W.T. accepted an early retirement buyout, he received no pension from AT&T. M.T. was sixty, unemployed, and not yet eligible for social security benefits. Aside from modest return from bank deposits, their only income was W.T.'s monthly social security payment of $1,600. M.T. and W.T. retained an attorney and filed a medical malpractice action against the surgeon, the hospital, and the anesthesiologist. They were told that it would likely be years before they received any settlement or recovery; the suit had not been resolved as of the time of this appeal.

In May 2002, fifteen months after W.T. entered Barnegat Nursing Home, M.T. met with Susan Goldring, Esq., an attorney specializing in family law, estate planning, and elder law, to discuss concerns about her financial future. One of the options discussed was a divorce from bed and board, which decrees a judicial separation without severing the marital bond and affords each party the same property rights as an absolute divorce. See L.M. v. Div. of Med. Assistance and Health Servs., 140 N.J. 480 (1995); Weinkrantz v. Weinkrantz, 129 N.J. Super. 28, 32-33 (App. Div. 1974); Loechner v. Loechner, 119 N.J. Super. 444 (Ch. Div. 1972); 1 Gary N. Skoloff & Lawrence J. Cutler, New Jersey Family Law Practice, §2.6 (12th ed. 2006). M.T. selected this option which accommodated her beliefs as a Catholic.

Ms. Goldring told M.T. that W.T. should have independent counsel, and she followed up with a letter to W.T. making that suggestion. After W.T. retained his own attorney, the parties and their attorneys met three or four times at the Barnegat Nursing Home to draft terms for a PSA. Ms. Goldring's position on behalf of M.T. was that in a marriage of this length where W.T. was the primary income earner, M.T. would be entitled to alimony and at least an equal division of marital property. In lieu of alimony, she sought an additional amount of joint assets sufficient to carry M.T. through the time before she received social security benefits and to provide a source of support to meet some of her needs over her twenty to twenty-five year life expectancy. In contrast, W.T.'s needs were tied to his nursing home care, and his life expectancy was severely limited and incalculable due to his respiratory dependence and grave condition. Moreover, Ms. Goldring noted there were different tax consequences on distributions from the marital estate.

W.T.'s medical and nursing home expenses would far exceed any drawdown from assets so that any distribution he received would be tax-free. On the other hand, any share received by M.T. would suffer a tax reduction of seventeen percent.

The PSA was prepared by W.T.'s attorney and signed by M.T. and W.T. on November 4, 2002, the same day as their divorce hearing. The PSA stated that each party waived alimony and set forth a plan of equitable distribution with the following stated purpose:

The said plan is to provide the Wife with sufficient income, which together with Social Security benefits she will receive when she attains the age necessary to qualify for same, will permit her to support herself and compensate for the loss of the Husband's income and not jeopardize the Husband's eligibility for Medicaid benefits.

The marital assets from investment accounts, IRA accounts, and bank accounts totaled about $686,000, much of which was in W.T.'s IRA account. The PSA equitable distribution plan provided for M.T. to receive assets valued at approximately $436,000, amounting to sixty-three percent of the marital estate, with W.T. to receive the remainder of about $250,000. Any recovery from the malpractice case was to be equally divided.

At the hearing, M.T. testified as to the cause of action, which was eighteen months separation or "no fault," and to her acceptance of the agreement. While W.T. was not present in court, the judge accepted the representations made by W.T.'s attorney that W.T. understood the terms of the PSA and accepted them as fair and reasonable. The trial judge granted the relief sought by M.T. and directed that the PSA be incorporated into the judgment. The signed judgment specified that the court made no independent findings as to the terms of the PSA.

Sixteen months later, on March 23, 2004, the petition for Medicaid benefits was filed. The $250,000 W.T. received in equitable distribution under the PSA had been reduced by payments for nursing home care, creation of a special needs trust, and gifts to W.T.'s daughter. The OCBSS reviewed his application and found that W.T. was then eligible for Medicaid benefits. However, the OCBSS imposed a transfer penalty under N.J.A.C. 10:71-4.10(b), finding that distribution of marital assets to M.T. under the PSA constituted an impermissible transfer for less than full value within the three-year "look back period." See N.J.A.C. 10:71-4.10(a); N.J.A.C. 10:71-4.10(b)(9). The penalty postponed W.T.'s eligibility from March 2004, when the application was filed, until September 2004. See N.J.A.C. 10:71-4.10(b).

The administrative appeal was filed as to the penalty imposed respecting assets transferred to W.T. through equitable distribution. A hearing was granted. W.T. died on January 4, 2005, but the hearing proceeded before an administrative law judge (ALJ) in May 2005. M.T. and her attorney, Susan Goldring, both testified that the PSA distribution to M.T. of more than fifty percent of the marital estate was not intended to rid W.T. of assets to assist for Medicaid qualification, but to preserve assets that were necessary for her support. Under questioning by the ALJ, Ms. Goldring explained:

We factored [the tax consequences to M.T. and W.T.] in and came up with the uneven split that we did that we felt would provide her with sufficient money to at least carry her for two years and at that point again we thought she would be able to get Social Security, and we hoped that the malpractice action would be resolved, and there would be money coming in from that.

I feel very confident that had we spent the money going to a trial that I could easily have gotten a disproportionate distribution. Whether it would have been exactly the same as we did it, or whether it would have been something different, that I cannot say. ALJ: Is that considering his circumstances of being in a nursing ...

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