by Bruce L. Dorner
As if medical insurance isn’t complicated enough, there are some changes in the law for coverage after a divorce. A new law took effect on January first of 2008. New Hampshire employers are required to continue group insurance for a former spouse without any additional premium for up to three years following a divorce or legal separation. However, this law may not apply to “self-insured” employers.
The requirement for coverage must be stated in the divorce decree and will terminate when the first of these events happens:
1. Three years from the final decree,
2. The former spouse marries,
3. The employee marries,
4. The employee dies,
5. Any earlier time specified in the decree.
The next concern is that the IRS has rules defining a spouse and a dependent. After a divorce, the former spouse is no longer a dependent. Therefore, the cost of the medical insurance may be considered as additional compensation to the employee which is reported on your 1040 tax return as income. So, the employee gets to provide a benefit for the former spouse and now has to pay taxes on money he or she never sees! To address this concern there will be a need for some adjustment in Federal law. I make no prediction as to what congress might do with this problem. It would be a good idea for anyone going through a divorce to consult with a tax professional.
There were also some changes in New Hampshire law which expanded the definition of dependent to include children by blood or by law who are:
1. Less than 26 years old,
2. Unmarried,
3. Either a New Hampshire resident or a student at a public or private institution of higher learning, AND
4. Not provided coverage under any other group or individual plan or Medicare.
Interpreting these changes will be complex. Some employers pay for all of the insurance. Some share the expense with the employee. How much of the cost of the insurance for a former spouse will be considered taxable income to the employee? What if there are two children and one qualifies as a dependent and the other doesn’t? The employee would still need a family plan. Does this mean that some portion of the cost of the family plan is taxable? I wish I could give you an answer. These issues are currently being reviewed by State and Federal officials. Hopefully, a clear answer will be available soon.
This article provides general information only. It is not legal advice. You should consult with your own attorney before making any legal decision.