Now that alimony is no longer tax deductible for those who pay it, many divorcing spouses who are looking at a future of paying substantial amounts to their exes are seeking ways to make their obligations less financially painful. One option that some people are choosing is an alimony trust.
A spouse can place money, property, business equity and other assets into an alimony trust. The income generated from those assets is then used to pay the support that is due.
While the grantor (the spouse who’s paying alimony) doesn’t pay taxes on the income generated by an alimony trust, the other spouse (the beneficiary) does. Since under the new tax law, spouses receiving traditional alimony no longer have to report it as income and pay taxes on it, they might understandably not agree to an alimony trust.
However, there are other advantages that might make it a good option. Since these trusts are typically managed by a third party, if you’re depending on a spouse who may not be a wise investor for your alimony, you may feel more confident of long-term, uninterrupted payments. This third party can also be a middle-man who lessens the contact necessary with an ex-spouse.
Further, unlike traditional alimony, which ends if the paying spouse dies, payments from an alimony trust continue. If the receiving spouse later dies, the money in the trust can be designated to go to other family members.
People in the midst of high net-worth divorces who seek to use alimony trusts to handle their obligations to their ex-spouses may be able to convince that spouse that even though they’re taxed on the alimony, overall, a trust is the most financially beneficial alternative for them.
If you’d like to find out more about the pros and cons of an alimony trust (whether you’re on the paying or receiving end), your Morristown family law attorney can help you. They can also recommend other financial and tax professionals who can help you determine whether this is the best option for you.