In re MARRIAGE OF CHRISTOPHER WASHKOWIAK – Is an MSA a marital asset subject to division? Apparently yes in Illinois

Posted date in Jason D. Lazarus, J.D., LL.M., MSCC Medicare Set Asides

In a case that probably isn’t as important as one might think at first, an MSA was considered a marital asset subject to division in dissolution of marriage.  Christopher Washkowiak was injured on the job in 2008.  In December of 2010, an arbitrator for the Illinois Workers’ Compensation Commission approved Washkowiak’s workers’ compensation settlement.  The settlement was for $365,000 plus a $70,000 Workers’ Compensation Medicare set aside (WCMSA).  In August of 2010, prior to the settlement being approved, a family law court issued an order dissolving Mr. Washkowiak’s marriage and awarding (per Mr. and Mrs. Washkowiak’s divorce settlement agreement) 17.5% of his net settlement proceeds to his former spouse.  This amounted to $12,250 of the funds set aside in the WCMSA.  A dispute arose as to whether Mrs. Washkowiak was entitled to that portion of the MSA.  Mr. Washkowiak argued that the MSA was not part of his net settlement proceeds.  Mrs. Washkowiak argued she was entitled to 17.5% of the MSA since the funds didn’t fall under the excluded category of “attorneys’ fees and usual and customary litigation fees and expenses” as provided in the judgment of dissolution.  The trial court agreed with Mrs. Washkowiak and Mr. Washkowiak appealed.

The appellate court analyzed the situation based upon the definition of net settlement proceeds as the dissolution decree defined that term.  The decree provided that “ ‘net proceeds’ include reimbursement for medical payments actually paid by” Washkowiak.   The court then stated that unless there was something that removed the MSA funds from the definition of “net proceeds”, then the MSA funds would fall within the definition of “net proceeds”.  The opinion proceeded to go through an explanation about the underpinnings of Medicare set aside from a CMS regulatory standpoint.  The court concludes that the money placed in the WCMSA were for the “sole purpose of paying . . . [Washkowiak]'s medical bills” and thus “the settlement is reimbursing him for his future medical costs.”  Therefore, according to the court, the money in the “MSA fall squarely under the definition of ‘net proceeds’ contained in the dissolution agreement.”

According to the opinion, there was no evidence presented by Mr. Washkowiak that the funds in the MSA were not “net proceeds” and without question the money was his.  Therefore, since the dissolution decree defined “net proceeds” to include payments for future medical costs, the funds held in the MSA were “net proceeds”.  Accordingly, the trial court correctly determined that Mrs. Washkowiak was entitled to 17.5% of the entire settlement including the MSA.  Mr. Washkowiak unsuccessfully argued that the MSA funds could only be used to pay for future medical costs related to his injuries.  The opinion points out that Mr. Waskowiak could provide 17.5% of the “net settlement” proceeds from the non-MSA funds he received and still leave the $70,000 in the MSA.  The court found the result would not be inequitable because Mr. Washkowiak could fully fund the $70,000 MSA from the 82.5% of the settlement proceeds he had left over after paying Mrs. Washkowiak. 

There was a dissenting opinion.  The dissent focused on the issue of the use of the MSA funds which was in the Justice’s opinion for the “sole purpose of satisfying Medicare’s interests”.  Therefore, he wouldn’t find they were part of the “net proceeds” of the settlement.  The majority and dissent engage in a debate about what happens to an MSA when the funds aren’t used.  According to the majority if the monies are not used Mr. Washkowiak gets them back.  The dissent says not so fast and points out, correctly, that the MSA funds would only be paid to Mr. Washkowiak’s estate in the event of his death (after satisfying any outstanding bills).  While this is a great academic debate, the bottom line is that with a self administered MSA the claimant can use those funds for their own purposes at any point without legal action against them.  The penalty would be loss of future Medicare coverage for injury related care if the MSA funds were not properly spent and accounted for.  The points made by the dissent are all valid, but from a practical perspective none of it really matters in terms of the inclusion of the MSA in the division of the “net settlement” proceeds.

In my opinion, the majority is right in reaching its outcome since Mr. Washkowiak had other monies he received which could be used to pay Mrs. Waskowiak her share of the total net settlement proceeds.  Because of the way the divorce settlement agreement was written, this is probably the right outcome.  I am not suggesting it is fair to make Mr. Washkowiak pay his ex-wife a portion of the funds he received for the MSA but the agreement did call for division of future medical expenses and the MSA is monies for future Medicare covered medical expenses.  I would not have crafted the divorce agreement in that way on behalf of Mr. Washkowiak if I had represented him.  There is no doubt that the funds in MSA can’t be used to pay Mrs. Washkowiak her share of the “net settlement” proceeds.  That has to come from the non-MSA “net settlement proceeds”.  MSA monies can only be used to pay for Medicare covered injury related expenses.  Interesting case and issues, but from a practical perspective it is probably of little import.  While many observers feel the decision is ground breaking or somehow saying the WCMSA must be divided, a careful reading of the opinion suggests otherwise.