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Is it possible to divide an HSA during property division?

For many Maryland spouses, concerns over the financial ramifications of a divorce are a significant source of stress. Understanding the ins and outs of the property division process can make it easier to weather a divorce, and allow spouses to maintain a sense of control over their own financial destiny. For some families, health savings accounts (HSAs) are an important consideration in the full scope of marital wealth, and many spouses are unsure how these funds can be divided.

A health savings account is a tax-free vehicle in which to save funds that are to be used for the sole purpose of covering the cost of various health services. There are limits on how much money can be placed into an HSA, as well as what those funds can be used for. In general, HSAs are handled in a divorce in much the same way as IRAs.

Health savings accounts can be a great financial planning tools for many families. In some cases, individuals choose to cover their health expenses on their own for many years, with a goal of saving their HSA money to cover more expensive needs as they grow older. That can be a very effective plan, and that approach is the reason why many divorcing couples have sizable HSA accounts to divide during divorce.

A share of the funds held within the account can be transferred between spouses, and the recipient can decide if he or she would like to leave the account in place, or place it with a new administrator or trustee. One spouse can even continue making deposits into the HSA account of the other party, and can keep the tax deduction that accompanies such payments. In short, Maryland spouses have a great deal of flexibility when it comes to handling this particular asset type, which is why it is so important to have a cohesive negotiation strategy early in the property division process.

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

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