In a 2-1 split decision, dated March 7, 2012, an Illinois Court of Appeals affirmed the trial courts decision to award an ex-wife part of the husband’s workers’ compensation settlement that was placed in a Medicare Set-Aside (“MSA”) account.
Christopher and Rosana Washkowiak were married in 2004. In 2008, Christopher was injured while working for Northern Pipeline Construction (“Pipeline”). On August 31, 2010 he was granted dissolution of marriage. The divorce settlement agreement awarded 17.5% of the “net proceeds” from Christopher’s workers compensation settlement to Rosana. On December 9, 2010, the Illinois Workers’ Compensation Commission approved a settlement agreement between Pipeline and Christopher releasing Pipeline from all past and future obligations for the payment of workers’ compensation benefits, indemnity and/or medical benefits and awarding Christopher $365,000 (less attorneys fees and expenses for a net of $296,330) plus a $70,000 MSA.
The parties agreed that the Rosana was entitled to 17.5% of the $296,330 that Christopher received. However, a dispute arose as to whether Rosana was entitled to 17.5% of the $70,000 MSA funds.
The dispute and the court opinion turned primarily on the interpretation of the term “net proceeds” in the divorce agreement. The divorce agreement stated that, “The Respondent is awarded 17.5% of the net proceeds from the Petitioner’s workers’ compensation settlement as and for her interest in the same. Net proceeds are defined as the agreed award amount less workers’ compensation attorneys’ fees and usual and customary litigation fees and expenses.”
Christopher argued that the MSA funds were set-aside to satisfy Medicare’s interest and were not part of the “net proceeds” of the settlement. Rosana, however, argued that she was entitled to 17.5% of the MSA funds because the $70,000 MSA funds did not fall under the excluded category of attorneys’ fees, usual and customary litigation fees and expenses.
The trial court determined that Rosana was entitled to 17.5% of the $70,000 in the MSA. The appellate court affirmed the trial courts finding in a 2 to 1 decision.
The appellate court majority stated that case law required them to determine the parties’ intent solely from the language of the divorce agreement. In their analysis, they concluded that the MSA funds fell “squarely within the dissolution decree’s definition of “net proceeds” and not into one of the exceptions for legal fees or litigation expenses. They were not persuaded by Christopher’s argument that the MSA funds were not part of the net proceeds because those funds are only to be used to pay for his future medical costs. They said the $70,000 MSA funds were clearly part of the net proceeds and that Rosana was therefore entitled to them under the divorce agreement.
The dissenting judge made a very interesting point that the divorce agreement did not intend for the $70,000 MSA to be part of the net proceeds because of this language: “Total amount of settlement $365,000 (does not include $70,000 MSA)”. The dissenting judge concluded that, “Because the MSA funds were set aside for the sole purpose of satisfying Medicare’s interests, I would find that they are not part of the ‘net proceeds’ of the settlement.” However, the majority was not persuaded by these dissenting arguments.
Conceptually, the federal government’s Medicare Secondary Payer (MSP) program and the practice of using Medicare Set-Asides are simple to understand. Medicare should pay second, and insurance coverage or insurance settlement money should pay first. Mr. Washkowiak, who was injured at work, received $70,000 from the workers’ compensation carrier that was designated to pay his future medical bills. The settling parties agreed to follow Medicare ‘s voluntary MSA guidelines and put this money into a separate bank account to be restricted to only paying his future medical bills. This MSA was done to protect Medicare from paying future medical bills and to show that the settling parties were complying with obligations they may have under the MSP statute.
How can this MSA money be a marital asset if it is restricted to being used to only pay future medical bills of Mr. Washkowiak? How can the ex-wife be entitled to this money? He was seriously injured and received this money to pay for his future medical treatment. Is she going to use it to pay his future medical bills? Does this court decision, which requires part of the MSA account to be paid to the wife, violate federal Medicare memos which say that this money can only be paid for future medical bills? How can the wording of the divorce decree control whether or not this restricted bank account is a marital asset or not? I am not saying that the court got it right or wrong in this case. I will let the lawyers debate that. Perhaps they followed the law as it stands now. But if the law does not allow an MSA account to be a separate asset in a divorce, then something is wrong, because it should.