To read this article directly on Forbes and/or to leave a comment, please click on this link: http://www.forbes.com/sites/jefflanders/2011/11/08/what-is-an-alimony-trust-and-why-nba-ex-wives-might-wish-they-had-one
Owners and players from the National Football League were locked in a labor contract dispute this summer. Now, owners and players from the National Basketball Association are in similar dire straits. NBA labor talks have deteriorated, and the entire season might be cancelled.
What difference does that make to me as a Divorce Financial Strategist(TM)? Not much, I suppose –especially because I don’t happen to be a sports fan.
But, the circumstances are quite interesting from the perspective of NBA ex-wives. If the season is further abbreviated or cancelled and NBA players can’t earn their usual paychecks, are some NBA ex-wives wondering about the future of their alimony payments?
A few months ago, I discussed the pros and cons of an upfront lump sum payment in lieu of regular alimony payments. As I mentioned then, since my firm exclusively represents women, it is our belief that an upfront lump sum payment in lieu of alimony is, in the vast majority of cases, the preferred option if the woman is to be the recipient of alimony.
However, the “preferred option” is not always available. For example, there may not be sufficient liquid assets to make a lump sum payment. What happens then? Are there other alternatives that will better ensure the receiving spouse receives alimony payments?
Yes, there are.
For instance, in certain circumstances, divorcing women should consider the benefits of an Alimony and Maintenance Trust (also known as a Section 682 Trust).
In an Alimony and Maintenance Trust, the payor spouse (the husband, for our purposes) transfers sufficient income-producing assets/property into the trust. The income generated by these assets is then used to pay alimony to the payee spouse (the wife, for our purposes) for the amount of time stipulated in the divorce or separation agreement.
An Alimony and Maintenance Trust has a number of benefits. For instance, an Alimony and Maintenance Trust:
- protects the ex-wife from the death or financial insolvency/bankruptcy of the ex-husband prior to the payment of all alimony. (If any NBA ex-wives chose this option, it’s likely they are shielded from their ex-husbands’ labor disputes.)
- can be administered by a neutral third-party professional trustee (such as a bank), who can act as an intermediary between the former spouses (especially important if the former spouses have a very contentious relationship).
- can have lasting benefits for children. After the ex-wife has received the amount of alimony for the period of time indicated in the divorce or separation agreement, or after her death, the income of the trust can either continue for the benefit of the ex-spouse’s children or the trust assets can revert back to the ex-husband to do with as he pleases.
In addition, an Alimony and Maintenance Trust may be particularly useful for business owners who cannot, or do not want to, sell an interest in a family business as part of a divorce settlement agreement. Using an Alimony and Maintenance Trust in this way is somewhat complex, and I’ll explore the issue in more detail in next week’s blog post.
In very general terms, think of an Alimony and Maintenance Trust as a way to ensure alimony support for the ex-wife even if the ex-husband engages in risky business ventures or runs the risk of bankruptcy. It also helps minimize non-payment risk and protects against a drop in the ex-husband’s income.
Of course, there may be tax consequences to both parties and certain downsides that need to be taken into consideration. For example, an Alimony and Maintenance Trust may be under-funded (an insufficient amount of income is being generated by the assets in the trust). Or, it could be over-funded or funded with assets that appreciate more than expected.
How can you sort through the pros and cons of different alimony alternatives? As you’ve heard me say many times before, when it comes to divorce, it’s best to build a qualified divorce team from the onset, so you can get the help you need to analyze and consider all the options available to you. Don’t take chances with your current and future financial well-being. You need a solid, comprehensive game plan –one that will keep you winning through four quarters . . . and long after.
Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com), a divorce financial strategy firm that exclusively works with women, who are going through, or might be going through, a financially complicated divorce. He also advises women business owners on what steps they can take now to “divorce-proof” their business in the event of a future divorce. He can be reached at Landers@BedrockDivorce.com.
All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
Follow Jeffrey A. Landers on Twitter: www.twitter.com/Bedrock_Divorce