HSAs require attention during divorce proceeding, too

After building a life together, two spouses may naturally find it difficult to split everything down the middle. This is true for assets such as the family home, and it is also true for monetary assets, such as the health savings account, or HSA. The HSA may be particularly confusing to split during a divorce proceeding in Massachusetts, simply because it has been in existence for only 13 years or so.

An HSA is an account to which the account owner can make contributions that are considered tax deductible. Funds that the owner draws from the account must be used for qualified healthcare expenses to avoid a 20 percent penalty. Currently, the maximum contribution for an HSA is $3,400 for a single adult and more than $6,700 for a family.

Many contributors to HSAs want their accounts to grow so that they can tap into them in the future, rather than using them for immediate medical costs. As a result, some accounts are worth more than $100,000. When it comes to property division during divorce, an HSA is treated in the same way that an IRA would be treated. The interest in such an account can simply be transferred between the divorcing parties as part of their divorce decree.

When a large sum of money or another high-value asset is at stake, going through a divorce can be particularly unsettling in Massachusetts. However, if the two spouses are willing to go through mediation, they may be able to reach a settlement that is mutually beneficial. Otherwise, they will have to rely on a judge to make the final decisions for them regarding their financial matters, and the outcome of the divorce may not necessarily be what one or both parties would have wanted.

Source: morningstar.com, “Handling HSAs After Death or Divorce“, Helen Modly, June 15, 2017