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What is an alimony trust?

An alimony trust is a solution for those who need to pay alimony as a part of their divorce proceedings, but don't want to liquidate investments in order to create a cash payout. As per the terms of an alimony trust, the paying spouse will move assets and investments into a special trust designed to benefit the recipient spouse. The trust will generate income, which is then paid out to the spousal beneficiary.

By creating the trust, the paying spouse will not be able to claim a tax deduction on the income that is paid to the recipient spouse. Meanwhile, although the recipient spouse will be taxed on this income, he or she will not be taxed on the principle used to generate the income.

Alimony trusts are helpful when the paying spouse or recipient wants to seek financial perspective. For example, the paying spouse might receive protection by putting the assets into a protected trust if he or she is worried that the receiving spouse does not have the financial wherewithal to appropriately manage the assets. Meanwhile, the recipient spouse can receive protection from a significant change in the paying spouse's financial circumstances that might prevent the paying spouse from satisfying his or her alimony payments in the future.

In certain high-net worth divorce circumstances, an alimony trust can be very useful for both sides of the marriage. Spouses may wish to learn more about this and other alimony-related legal solutions that could help them achieve a fair and equitable divorce settlement that honors each spouse's marital property rights.

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