Setting up a trust in New Jersey to make alimony payments

Once the emotion is removed from a divorce situation, it basically amounts to negotiating a business deal. Part of those negotiations for some New Jersey couples who are divorcing involves alimony. But even in the best of circumstances, negotiating a divorce settlement is rarely easy, especially with relatively new tax laws in place, which has meant changes in the ways payors and payees of alimony look at things.

Essentially, the spouse who now pays alimony can no longer claim the payment as a tax deduction, while the spouse on the receiving end doesn’t have to claim the funds as income. These payments are now more costly for the payor because of the elimination of the tax break, so many such payors have set up trusts to pay their former spouses alimony. Grantor trusts actually mean the payee pays taxes on funds paid out, so it takes some negotiating finesse to get a payee to agree to this situation.

There is a negotiating tool with respect to these trusts. The trade-off is that a payee could continue to collect funds from the trust once his or her former spouse dies, whereas conventional alimony payments end at death. Another way to save on taxes is by selling the family home. This can be especially prudent in New Jersey which is a high property tax state.

An experienced New Jersey lawyer may be able to counsel a client on how he or she can minimize the tax implications of paying alimony. A client who has questions regarding these payments — whether on the paying or receiving end — may find matters less confusing after speaking with an attorney. Having answers to perplexing questions may make it easier to come to an agreement with a former spouse.