How QDROs Protect Families from Nursing Home Costs

Ovando Bowen
Sep 17
4 min read

For many families, the biggest financial threat in retirement isn’t market crashes or inflation — it’s long-term care. A nursing home can cost $6,000 to $10,000 per month. Even with good planning, those costs can quickly drain a lifetime of savings.

This is where an often-overlooked tool, the QDRO, can make all the difference. While most people associate Qualified Domestic Relations Orders (QDROs) with divorce, couples can also use them while staying married to protect assets, qualify for Medicaid, and avoid financial ruin when one spouse needs nursing home care.

In this post, we’ll break down how it works, why it’s legal, and real-life examples of how it can help families.

The Challenge: Nursing Home Costs and Medicaid Rules

Medicaid is often the only safety net available for seniors facing long-term care costs. But to qualify, strict rules apply:

A person in a nursing home (the “institutionalized spouse”) is allowed only very limited income and assets.
The spouse who remains at home (the “community spouse”) may keep some assets, but income rules are often harsh.
Retirement accounts and pensions in the institutionalized spouse’s name may count against eligibility.

Here’s the heartbreaking part: even if the healthy spouse still needs income to survive, Medicaid may require the couple to spend down assets or lose benefits. In practice, that means many families are forced to choose between paying for care and protecting the spouse at home.

Enter the QDRO

A QDRO allows the couple to legally transfer retirement income or assets — such as a pension or 401(k) — from the institutionalized spouse into the name of the community spouse.

Because the law recognizes QDROs as valid transfers between spouses, the income is no longer counted against the spouse in the nursing home. Instead, it becomes available to the spouse at home for their living expenses, while still allowing the institutionalized spouse to qualify for Medicaid.

Why This Works

Normally, you can’t just “give away” income or assets to qualify for Medicaid — the program has strict rules against transfers. But QDROs are an exception because:

Federal law specifically defines a QDRO as allowing transfers to a spouse or former spouse.
Once approved by a state court and accepted by a retirement plan, the transfer is recognized as legitimate.
Medicaid rules generally follow federal definitions of what counts as income or assets.

That combination makes a QDRO a unique and powerful strategy.

Real-Life Example: Robert and Carol

Robert, age 78, is entering a nursing home. He has a pension that pays $4,000 per month.
Carol, age 75, is healthy and living at home. She relies on that pension to pay bills.

Without a QDRO:

Robert’s pension is treated as his income.
Because of Medicaid’s rules, Robert may not qualify for benefits.
The couple may have to drain other savings just to pay for care.

With a QDRO:

Robert’s pension is transferred into Carol’s name.
The $4,000 monthly income now belongs to her, not Robert.
Medicaid counts only Robert’s remaining income, making him eligible for benefits.
Carol keeps the pension income to support her own needs.

This strategy essentially protects the couple’s income stream while still allowing Robert to receive care.

Why This Is a Game-Changer

For families facing nursing home care, the difference between losing a pension to Medicaid rules and protecting it with a QDRO can be life-altering.

The community spouse keeps stable income.
The institutionalized spouse qualifies for benefits faster.
The couple avoids draining other savings or selling their home.

In short, it prevents one spouse’s care needs from bankrupting the other.

Other Ways It Helps with Long-Term Care

Shielding 401(k) Assets: Just like with pensions, a 401(k) in the name of the institutionalized spouse can block Medicaid eligibility. A QDRO can transfer it to the community spouse instead.
Planning Ahead: Even before care is needed, couples can use QDROs strategically to prepare. Transferring funds early can give the community spouse more control and reduce future stress.
Combining with Trusts: Estate planning attorneys sometimes pair QDROs with trusts for even stronger protection, ensuring assets remain safe for the family.

Is It Legal?

Yes.

The IRS and Department of Labor both confirm that QDROs apply to “spouses,” not just “ex-spouses.”
Federal courts have ruled that as long as a QDRO meets technical requirements, it must be honored.
Medicaid generally cannot override federal QDRO rules.

The key is making sure the order is properly drafted, approved by a state court, and accepted by the plan administrator.

The Risks You Need to Know

Like any strategy, there are risks:

Divorce Risk: If the marriage ends, the transferred assets truly belong to the other spouse.
Death Risk: If the receiving spouse dies, they control who inherits the money.
Complex State Rules: Medicaid laws vary by state, and not every state treats transfers the same way.
Costs: Court filings, attorney fees, and plan administrator fees can add up.
No Guarantee: Due to this unique approach, some judges have been hesitant to sign the QDRO's- like life, nothing in court is guaranteed.

Because of these risks, it’s critical to work with an attorney who understands both QDROs and Medicaid planning.

Who Should Consider This Strategy?

A QDRO for long-term care protection may be a good fit for:

Couples where one spouse faces nursing home care.
Families relying heavily on a pension or 401(k) in the institutionalized spouse’s name.
Seniors worried about Medicaid eligibility.
Couples wanting to protect income for the community spouse.

The Bottom Line

Long-term care costs can devastate even the best-prepared families. Medicaid is supposed to help, but its strict rules often leave spouses at home financially vulnerable.

A QDRO offers a way out. By transferring retirement income to the community spouse, couples can protect what they’ve earned, support the spouse at home, and still qualify for benefits.

It’s not without risks, and it requires careful legal work. But for families staring down the financial cliff of nursing home care, it may be the lifeline they need.

Key Takeaways:

Nursing home care can cost $6,000–$10,000 per month.
Medicaid rules often force couples to spend down retirement income.
An In-Marriage QDRO can transfer pensions or 401(k)s to the healthy spouse.
This protects income for the community spouse while still qualifying the other for benefits.
Legal, but must be drafted carefully and may carry risks.

Talk to the professionals at Ovando Bowen LLP to see if this is a right strategy for you and your spouse.