Protecting the Healthy Spouse: New Jersey Medicaid Planning for Married Couples

When one spouse needs long-term care, the other often fears financial ruin. It’s a heartbreaking situation that thousands of couples face every year: How can we afford to care for one spouse without leaving the other destitute?

Fortunately, Medicaid spousal protections, also known as spousal impoverishment rules, are in place to prevent such a dire situation. With careful Medicaid planning for couples, it’s possible to ensure care for the ill spouse while safeguarding income and assets for the healthy spouse who remains at home, providing a much-needed sense of relief.

At Ralston Law, we help married couples navigate these complex rules to protect what they’ve worked hard to build—and to ensure that both partners’ needs are met with dignity.

Medicaid recognizes that when one spouse enters a nursing home (the institutionalized spouse) and the other remains at home (the community spouse), the community spouse should not be left penniless.

To address this, Medicaid created spousal impoverishment rules that allow the community spouse to keep a portion of the couple’s combined assets and income. These protections vary slightly by state, but the overall structure is consistent across the U.S.

The goal is simple: to balance access to care for the institutionalized spouse with financial protection for the one remaining at home.

One of the most essential Medicaid protections for married couples is the Community Spouse Resource Allowance (CSRA). In New Jersey, the Community Spouse Resource Allowance follows federal $31,725 minimum and $162,660 maximum limits, which are updated annually and strictly applied by the New Jersey Division of Medical Assistance and Health Services (DMAHS).

Here’s how it works:
When one spouse applies for Medicaid long-term care coverage, the couple’s countable assets are added together. Medicaid then allows the community spouse to keep half of those assets, up to a state-specific maximum (and subject to a minimum allowance).

For example:
If a couple has $200,000 in countable assets, the community spouse may be allowed to keep $100,000. The institutionalized spouse must “spend down” the rest before qualifying for Medicaid—unless planning strategies are used to protect more.

Certain assets are exempt from this calculation, such as:

• The primary residence (up to a specific equity value)
• One vehicle
• Personal belongings
• Particular prepaid funeral and burial accounts

Understanding the distinction between what’s countable and what is exempt is key to maximizing protection under Medicaid’s rules.

In addition to asset protection, Medicaid also safeguards a portion of the couple’s income.

If most of the couple’s income comes from the institutionalized spouse—like a pension or Social Security benefit—the community spouse could be left with little to live on. The Minimum Monthly Maintenance Needs Allowance (MMMNA) ensures that doesn’t happen.

Under this rule, the community spouse is entitled to a minimum monthly income—a set amount established by each state. If their personal income is below that threshold, a portion of the institutionalized spouse’s income can be transferred to them each month.

New Jersey allows the community spouse to request an increased MMMNA through a fair hearing when shelter expenses—such as property taxes, rent, or utilities—exceed standard thresholds, a common issue given New Jersey’s high cost of living.

This rule provides a crucial sense of financial stability for the healthy spouse during a time of significant life change, offering a much-needed sense of security.

Even with these protections, the basic Medicaid rules often leave families anxious about losing savings or the family home. The good news is that advanced Medicaid planning can significantly improve outcomes.

Here are a few key strategies elder law attorneys use to protect assets for the community spouse:

1. Medicaid-Compliant Annuities

A properly structured Medicaid-compliant annuity can convert excess assets into an income stream for the community spouse, reducing countable resources while staying within Medicaid’s eligibility rules. In New Jersey, Medicaid-compliant annuities must be irrevocable, non-assignable, actuarially sound, and name the State of New Jersey as remainder beneficiary to the extent of benefits paid.

2. Medicaid Asset Protection Trust (MAPT)

Placing assets—like the family home—into a Medicaid Asset Protection Trust (MAPT) well before applying for benefits can remove them from countable resources after the five-year look-back period has passed.

New Jersey strictly enforces the five-year Medicaid look-back period, making early planning especially important for couples seeking to protect their home or savings.

3. Spousal Refusal (Limited and Closely Scrutinized in New Jersey)

New Jersey technically allows spousal refusal; however, the state frequently pursues recovery actions against the refusing spouse. As a result, this strategy must be approached cautiously and only with experienced elder law counsel.

4. Asset Reallocation

Certain assets—such as home repairs, mortgage payoffs, or vehicle upgrades—can sometimes be reclassified to reduce countable resources while improving the community spouse’s quality of life. For instance, a necessary home repair can be considered an expense, reducing the value of the home for Medicaid eligibility purposes.

In New Jersey, permissible spend-down strategies may include paying off a mortgage, addressing deferred home maintenance, replacing an aging vehicle, or covering necessary medical expenses—when properly structured and documented.

Each couple’s situation is unique, so these strategies should always be customized as part of a comprehensive asset protection plan tailored to their specific needs.

While some crisis planning options exist when care is needed immediately, early planning offers far greater flexibility and protection.

By starting the process before a health crisis occurs, couples can:

• Protect the home and other assets using trusts or annuities.
• Avoid Medicaid transfer penalties under the five-year look-back rule.
• Coordinate estate and income planning for both spouses.
• Reduce stress and uncertainty during already difficult times.

Because New Jersey Medicaid applies strict financial review standards, early planning offers significantly more flexibility than last-minute crisis planning.

Medicaid’s spousal protections are designed to ensure that needing long-term care doesn’t bankrupt the healthy spouse. But understanding and applying these rules correctly takes expert guidance.

With proper Medicaid planning for couples, you can secure care for your loved one while protecting your own financial future.

At Ralston Law, we help New Jersey families develop customized strategies that honor both spouses’ needs and protect what matters most.

If your spouse may need care—or if you simply want to plan—schedule a consultation today. It’s never too early to protect your home, your savings, and your peace of mind.

Schedule a complimentary 15-minute discovery call to learn how I can support you.

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