In this volatile economy, you may have gone through times when your income was high and others when you barely made enough to pay the bills. Lots of occupations can involve large swings in income depending on circumstances largely beyond your control. In professional sports, for example, you may stand to make millions — but an injury or lockout could change things suddenly. The same goes for entrepreneurs; new ventures can bring big payoffs or simply fizzle out.
When one spouse’s average income has been high during the marriage and the other has worked at home or in a non-career position, a divorce may involve alimony. Alimony, which is called spousal support in California, can be ordered on a temporary basis during the divorce process and/or on a longer-term basis, essentially in order to sustain the lower-earning partner’s standard of living.
If the payor spouse’s income fluctuates widely, should alimony fluctuate, too?
Generally, spousal support payments are a fixed amount paid monthly. If the payor spouse’s income dropped dramatically, he or she could seek a reduction in the amount later. If the income increased a great deal six months later, though, the payee spouse could seek an increase. The exes could end up going to court quite a lot, over time.
One way to avoid that is to create an alimony and maintenance trust, which is also known as a Section 682 trust. Under California law, you can negotiate your own agreement instead of having a judge calculate and order spousal support. You can negotiate the amount that seems fair — for example, by averaging the payor spouse’s income over the course of the marriage and basing the payment on that average income. Alongside that agreement, you can set up and fund a trust to make those payments.
One of the benefits of an alimony and maintenance trust, if properly funded, is that it guarantees the payee a regular source of income that won’t be affected by fluctuations in the payor’s earnings. Another benefit is that the trust might outperform expectations, meaning that after the payee spouse’s death, the income could continue to be paid to the children or other beneficiaries.
An alimony and maintenance trust is not the only alternative to regular monthly payments of spousal support, and it’s not right for everyone. In the right circumstances, though, it can be an effective tool for providing regular support and preventing disputes in the years ahead.