Health Savings Accounts and Divorce

A Health Savings Account, otherwise known as an HSA, is an account set up with a trustee to collect, hold, and pay or reimburse for certain medical expenses incurred by the owner of the account, the spouse, or a qualified dependent. When you use the HSA to pay medical expenses, you have paid for the expenses with pre-tax dollars. These expenses are then not deductible as medical expenses.

An HSA allows you to save, grow your savings, and pay for healthcare expenses on a tax-free basis. HSAs are linked to a high deductible health insurance plan and the owner of that plan is the eligible account owner. The funds in the account can be used for medical expenses for the spouse or dependent.

An HSA cannot be a joint account and typically there is only one spouse titled to the HSA account.

Can I get a share of the balance of the HSA when my spouse is listed as the owner?

Yes. If you obtain your own health insurance plan with a high deductible, a transfer can be made, tax-free, to an account you have established. If you do not establish a health savings account, the transfer will be considered a non-qualified distribution, and therefore the amount transferred will be subject to income tax and a 20% penalty, except for those age 65 and older.

Can I set up an HSA?

Yes, if you meet the following criteria:

  • You are covered under a high deductible plan, in your name;

  • You did not have any other health coverage (except that you can have disability, dental, vision, and long-term care insurance);

  • You are not enrolled in Medicare; and

  • You’re not eligible to be claimed as a dependant.

Accounts may be set up with any account provider and are separate and apart from the insurance provider.

How do I set up my own HSA?

Shop around for companies offering HSA accounts. There are several banks that specialize in HSA accounts. Look through the offerings. Some offer only interest on the balance held while others offer more investment options such as mutual funds. You will also find that fees charged by each of these banks can be quite different. Simply complete the application form and set up how you want to transfer monies to the account.

What happens to my account in the event of my death?

You should name a beneficiary to the account. If your beneficiary is a spouse, the account will then be treated as theirs and they can pay for their medical expenses, tax-free. If someone other than a spouse inherits the HSA, it stops being an HSA and the value becomes taxable to the beneficiary in the year of the HSA participant’s death.

People interested in setting up an HSA should do some research to find a plan that meets their needs.

Contact me with questions or comments today.

Susan A. Moussi, CPA, CFP®, CDFA SMD Tax & Divorce Financial Planning Consultants, Inc. Phone: 614.429.4172