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August 18, 2021 • Legislative & Regulatory

A Preventative Measure to Protect an MSA Account During Divorce Proceedings

This summer, The Vermont Supreme Judicial Court issued a decision in the matter of Geraw v Geraw  No. 2020-263, June 11, 2021, that is instructive on protecting a Medicare Set Aside account in the context of a contentious divorce. The facts of the case are straightforward. The husband sustained a work -related injury in 2010 while the couple was married. The couple divorced and after the divorce was final, he settled a workers’ compensation claim. The decision recounts the facts of the couple’s financial status at the time of the divorce, the substance of the divorce decree and their subsequent financial history. We learn the husband failed to comply with the divorce order in several material ways. Because of these failings the wife took steps to enforce the ignored decree and collect on the money she was owed.

The trial court was clearly not impressed with the husband’s veracity. In fact, it found him not credible and rejected his testimony. It found he tried to insulate all his assets from his wife’s claims through transfers to others and by creating trusts.

Important to this case and to workers’ compensation generally is that Vermont, like most other jurisdictions, has a provision insulating workers compensation from creditor claims. See 21 V.S.A. Section 681. On appeal the Court was asked to consider whether the statute exempts not only all claims by creditors, but whether workers’ compensation proceeds enjoy an absolute exemption and any funds paid out or traceable to workers’ compensation benefits are afforded the same plenary exemption. In simple terms, the husband contended his workers’ compensation was exempt from claims and the settlement proceeds and anything purchased with those funds was exempt as well. The Court flatly rejected this argument. They did so, observing it was based on a faulty premise. Workers’ compensation benefits in Vermont can be reached to satisfy child support and spousal support obligations. The Court explains the statute makes no mention of tracing assets purchased with workers’ compensation settlement funds and no such language can be reasonably implied.

Important to the workers’ compensation community however is this court's discussion about a workers’ compensation Medicare Set Aside (MSA) account. The court observes, “Certainly, a WCMSA would appear to be encompassed within the plain language of section 681 and exempt from collection.”  The Court had in evidence the Workers’ Compensation Medicare Set Aside Reference (WCMSA) Guide and other documents explaining a party’s Medicare Set-Aside obligations. The Court noted the husband filed with his pleadings a letter acknowledging he is self-administering his WCMSA.

After describing in some detail what a WCMSA is and how to properly administer one, the Court went on to say, the question “whether a WCMSA account can be attached is not properly before us.” They explain this is the case because the husband bore the burden of establishing an exemption and he failed to meet his burden. How did this happen? It appears the husband made the argument but had no evidentiary support he had a separate bank account as is required, and he was not credible on other elements associated with MSA obligations.

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Why would we write an article and reflect on this case? Because a fair reading of the Court's decision makes clear if the husband had demonstrated he had an MSA, those funds would have been protected. This could have been done with professional administration. He could have secured records from the professional administrator and protected the asset. In this matter, the alleged MSA was not protected and the funds became another asset available to satisfy obligations to the poorly treated disgruntled spouse.

Divorces are all too common in our society, but because they are a reality, in the days leading up to a settlement, inquiries should be made about the stability of a marriage.  If a settling spouse is concerned about the safety of the Medicare Set Aside, those funds can best be protected with professional administration. A clear demonstration there is a separate account established for the sole purpose of paying post settlement medical bills would have saved the day in the Geraw v Geraw  matter.

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