What is an 'Alimony Trust'

An alimony trust is a legal arrangement where property, investments or equity from a business are transferred into a trust and income generated from the sources is used to pay alimony following the final settlement of a divorce or separation.

Generally, a third-party serves as an intermediary between the two spouses to keep the asset management structured in a way that suits both. Once the trust is set up, distributions of all of the income generated in the agreed upon time period go to the recipient spouse, who also becomes the beneficiary for the alimony trust.

BREAKING DOWN 'Alimony Trust'

Alimony trusts are particularly useful in situations where a greater degree of protection is desired, either from the payor spouse or recipient spouse's point of view. For example, the payor spouse may be concerned about the recipient spouse's lack of financial experience in managing a large divorce settlement. Similarly, the recipient spouse may be concerned about the risk of the payor spouse's business becoming insolvent, which may have a detrimental impact on his or her ability to make continuing support payments.

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