Ex-Wife Receives Portion of Husband’s MSA in Divorce Settlement

In the case of In Re Washkowiak1, an Illinois appellate court awarded a portion of a workers’ compensation claimant’s MSA to the claimant’s now ex-wife in a divorce settlement. Christopher Washkowiak (Christopher) and Rosana Washkowiak (Rosana) were married in 2004. Christopher suffered a work-related injury while working for Northern Pipeline Construction (Pipeline) in 2008 and subsequently filed a workers’ compensation claim. In 2009, Christopher filed a petition for dissolution of his marriage to Rosana. After the parties came to a settlement agreement, the trial court entered a judgment of dissolution of marriage on August 31, 2010 which provided that Rosana would be awarded 17.5% of the net proceeds from Christopher’s workers’ compensation settlement.

About three months after the divorce settlement, Christopher settled his workers’ compensation case. As part of the settlement, an MSA was included to be “. . . used solely to pay for future Medicare-covered medical and/or prescription drug expenses.” The MSA amount was $70,000 and his total amount of settlement, excluding the MSA, was $365,000, and with deductions for attorneys’ fees, medical reports and x-rays, totaled $296,330.

It was clear to the parties that Rosana was entitled to 17.5% of the $296, 330 that Christopher received from his settlement; however this dispute concerned whether Rosana would also be entitled to 17.5% of Christopher’s $70,000 MSA fund. The trial court found that the MSA funds should be included in the net proceeds for purposes of calculating Rosana’s share, and therefore, Rosana received a distribution of $12,250 from Christopher’s MSA (she had already received the undisputed portions of the workers’ compensation settlement).

Christopher appealed the trial court’s decision based upon the argument that the nature and intent behind an MSA precludes the funds from being included as part of the “net proceeds” of the settlement. In essence, he felt that because the funds were intended to be only used to pay for his future medical costs which would otherwise be covered by Medicare, that it would not be logical to include the MSA as part of the “net proceeds.”

The appellate court did a thorough evaluation of the various CMS Memoranda, the MSP, as well as the corresponding Code of Federal Regulations (CFR) for guidance surrounding MSA allocations. While this investigation revealed the intent and purpose behind an MSA–which is specifically to protect Medicare’s interests and pay for items related to the injury that would otherwise be reimbursable by Medicare–the appellate court could not ignore the fact that the dissolution of marriage decree defined “net proceeds” to include reimbursement for medical payments actually paid by Christopher. Because the $70,000 MSA was intended for the sole purpose of paying Christopher’s future medical bills, the settlement was thereby reimbursing him for his future medical costs. Because of this logic, the funds in the MSA were found to squarely fall under the definition of “net proceeds” contained in the dissolution agreement.

For the trial court to have attempted to subdivide the MSA funds from the rest of the net settlement proceeds and assess them individually would not have been supported by the marriage dissolution decree. Additionally, the court found that Christopher could still provide that 17.5% from his settlement funds and make his $70,000 MSA whole again by using his other settlement proceeds.

Interestingly, the dissenting opinion stated that the majority’s decision was incorrect and against public policy. Justice McDade wrote: “Both parties acknowledge that all funds held within an MSA can only be used for future medical expenses. I therefore believe it would violate public policy to allow respondent (Rosana) to take 17.5% from the funds allocated to Medicare for her own personal use. Such a diversion of funds not only harasses logic, but it also cuts against the grain of the plethora of legislative authority that has been enacted since 1980 in an effort to curb skyrocketing health costs and preserve the fiscal integrity of the Medicare system.”

There is a lot to be learned from In Re Washkowiak. Clearly, it was not the court’s place to re-write the terms of the parties’ dissolution decree in this case. However, the dissenting judge’s public policy argument clearly does have merit in that the intent of the MSA was to protect Medicare’s interests by paying for items which would otherwise be reimbursable by Medicare. This case demonstrates that care should be taken when drafting settlement agreements in dissolution of marriage cases where one of the spouses has previously received an MSA as part of a workers’ compensation or liability settlement. When this occurs, the attorney drafting the settlement agreement (and the parties reviewing it) needs to focus on the exact language describing how these funds should be treated.

1. [2012 Ill. App. LEXIS 151 (3rd District, March 7, 2012).]

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.