One great “take away” from the NBA lockout…

The NBA returns on Christmas, but it leaves a good lesson for all of us.  Imagine you are the ex-wife of an NBA player.  As you (and he) faced the prospect of a locked-out season and reduced or total elimination of a year’s worth of wages, how might this have affected your (ample!) alimony payments?  

Maybe you’re not the ex-spouse of a professional athlete, but you might be the ex-spouse of an average person who could be laid off or experience reduced capability to earn his/her normal wages in the future, especial in these economic times.  The usual alimony structure is that some amount is paid out to the ex-spouse over some period of time.  But there is an increased risk that the paying spouse won’t pay that alimony in the future due to lost or reduced wages.  How does one mitigate this risk? 

There are alternatives to the standard alimony structure, as this recent article in Forbes magazine pointed out.  One way to mitigate this risk is to have the alimony paid as an upfront lump sum payment.  However, this may not be a viable option if there are insufficient assets to liquidate or where the only income producing asset is a business owned by the payor spouse.

One seldom used solution can be to create an Alimony Trust.  Assets are transferred into the trust and the income generated from the assets is used to pay alimony to the payee spouse.  When the alimony term ends, the assets can revert back to the payor spouse.  During the term of the trust, the assets are not available to the payor spouse or creditors.  Further, a trustee, not the payor spouse, writes the checks and is responsible for making the alimony payments.  Although this is not a solution for all cases, it is something that should be considered in the process. 

Divorce rates are still high in the U.S. and as such ShindelRock is regularly involved with the tax and financial impacts involving clients who are divorced or are in the process of a divorce. We look for solutions and out-of-the-box alternatives that best fit our clients’ unique needs and circumstances.  Contact us if you’re navigating the divorce process to ensure your decree best suits your changing needs and resources.