Changes in legal marital status allow an employee to make a corresponding, prospective election change mid-plan year. These include marriage, divorce, death of spouse, legal separation, and annulment. This means that when one of these events occurs, an employee could make a change that’s consistent with the event. For example, upon a divorce, an employee could drop the former spouse and move from employee + spouse to employee-only. Now, the Section 125 rules don’t define “legal separation.” Instead, what constitutes a legal separation is controlled by state law. Most states recognize legal documentation of separation, but even if it’s recognized by the state, no change would be allowed if eligibility under the plan isn’t lost as a result of that legal separation. In other words, unless the plan says that legally separated spouses are no longer eligible, then a change wouldn’t be allowed just because of a legal separation. Also, the beginning or end of a domestic partner relationship wouldn’t trigger a midyear election change under this rule. The reason is because a domestic partner is seen as an unmarried same-sex or opposite-sex partner for federal tax purposes. However, if the change impacts the domestic partner’s status as a tax dependent for health coverage purposes, then a midyear election change might be allowed under the ‘change in number of dependents’ event. But when coverage for a domestic partner is paid after-tax, the irrevocable election requirement may not apply anyway. Lastly, in the case of a divorce, legal separation, death or annulment where eligibility is lost, an employee may cancel the election for the ex-spouse, and the plan option (e.g., HDHP to PPO) could also be changed. An employee can elect coverage for themselves or dependents who lose eligibility under a spouse's plan as a result of these events.
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