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Divorce is never easy. Learning to disentangle two lives can be exhausting, frustrating and full of confrontation - especially if you have children. Health care can be especially tricky, as many families share insurance plans and medical savings accounts. If you're divorcing, have children and use a flexible spending account (FSA) or health savings account (HSA), here's what you need to know.
Divorced and using HSAs and FSAs with children
HSA holders can spend money on themselves and anyone who is a qualified tax dependent. If your spouse claims your son on her tax return, you can't claim them - that means you can't use HSA money for their medical needs. However, there is an exception in the aftermath of a divorce: a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption.
FSA rules are more lenient when it comes to children and eligibility. If you have a child, you're allowed to spend FSA funds on them even if you don't claim them on your taxes or pay for their health insurance. This applies to children up to the age of 26.
If your child isn't under your health insurance plan and don't share that plan with a new spouse, you can only contribute the individual maximum amount to your HSA and not the family max.
Splitting HSAs and FSAs
If you're getting divorced and have a significant sum of money in an HSA, you and your partner will have to decide how those are divided. There's no set rule regarding how FSA and HSA funds have to be split up, so it all depends on your divorce agreement. You and your lawyers can decide how to divide that up, either 50/50 or in another arrangement.
Divorce is considered a qualifying event, so you can also change your health insurance plan once the divorce is finalized. During that time you can remove a spouse from your plan if you previously held a family membership.
If you're getting divorced and contributing to an HSA for the maximum family contribution limit, you'll have to change your contribution schedule as soon as the divorce is finalized. The contribution limit will remain the family limit for the months you were married, but will be prorated for the year. Talk to a financial adviser to make sure you don't contribute more than the maximum if you're unclear about your personal limits.
If you're divorced and still want to pay for your ex-spouse's medical bills with an HSA, those will be considered an ineligible withdrawal and be subject to income tax and a 20% fine. If you use your FSA for your ex-spouse's expenses, you may be asked to pay the plan back by your administrator. So even if your divorce agreement includes you paying for his or her medical bills, you can't use HSA or FSA funds to do so.
From FSA basics to the most specific account details, in our weekly Asked and Answered column, our team gets to the bottom of your most-pressing flex spending questions. It appears every Wednesday, exclusively on the FSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook, Instagram and Twitter.