Dividing major assets during a divorce is always an elaborate process. In Illinois, assets like a health savings account (HSA) are up for negotiation during a divorce.
An HSA isn’t like health insurance
A health savings account is more like a 401K or Roth IRA than health insurance. A divorcing couple may decide to have an ex-spouse included on their health insurance for a certain length of time after they part ways. This isn’t an option with a health savings account. HSA funds cannot pay for the medical expenses of an ex-spouse. For this reason, it will be important to negotiate the account as an asset during the divorce.
Note that either parent can still use money from an HSA to pay for a child’s medical expenses. This is true even if the owner of the HSA is not the parent claiming the child as a tax dependent.
Think long term
Health savings accounts are investment accounts for the future. This makes them a more complex asset during divorce than property like vehicles or boats. Factors like accrued interest and the amount of time an account has been open are important considerations.
One of the things that make negotiating health savings accounts so complex is taxes. HSA funds pay for medical expenses. When used for qualifying expenses, it’s done tax-free, like that of a Roth IRA. You’ll want to consider tax treatment in the long term when evaluating the worth of accounts you’re negotiating during a divorce.
Once an HSA has been properly negotiated during the divorce process, an account may require a formal transfer of ownership. Your individual HSA provider will have more information on what they require to finalize that process.