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April 11, 2013

Divorce? Legal Separation? A COBRA Conundrum

Recently, the Alabama Court of Appeals rendered an opinion in Leverett v. Leverett, 2013 WL 1165375 (Ala. App. 2013), that offers a good opportunity to review COBRA compliance.  In this case, the Leveretts entered into a divorce. Upon notification of the divorce, the health plan issued a COBRA notice.  The Leveretts then tried to reclassify their status as legal separation in order to avoid loss of health coverage.

The ever increasing complexities of obtaining health coverage may cause this kind of scenario to occur more frequently.  The court in this case, determined that it was impermissible to reclassify the legal status from divorce to legal separation in order to preserve health benefits.

As a reminder, COBRA provides health coverage continuation in the event there is a qualifying event resulting in a loss of health coverage.  Key to COBRA is that there be both a qualifying event and loss of coverage.  While both divorce and legal separation constitute qualifying events, legal separation does not always result in loss of coverage.  Only a legal separation that results in loss of coverage will give rise to COBRA.

If an employer wants to ensure that coverage ends upon the occurrence of a legal separation, the plan should be written very clearly to state that legal separation results in loss of eligibility for the health plan.  If legal separation results in loss of coverage, COBRA would be available, assuming the plan is subject to COBRA.

 

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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