Will I pay higher alimony if I someday get an inheritance?


Q. I am going through a divorce and I’m afraid the mediator is railroading me. I am 54 and my parents are in their mid-80s. I would get an inheritance of about $2.5 million when they pass away. I know my ex-wife is not entitled to the equitable distribution of inheritance, but I was told that the “income” the inheritance spins off can be used in determining alimony at that time. The mediator says I have to ante up more money now to avoid that. I know I can place the assets in a trust when the time comes and have the trust pay the tax and avoid the income showing on my tax return if I had to, but I don’t want to plan anything that I don’t have to.
— Looking for fairness

A. Your parents can take some steps to help you out.

But first, you’re correct that as long as you don’t comingle any inherited funds in a joint account, the assets will be protected from equitable distribution in a divorce.

If you had already inherited the funds and the income was used to support your spouse, the funds can be subject to alimony, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

“Have your parents set up a trust account that uses the terms `heath, maintenance and support,’ which are rather broad terms,” he said. “These funds are protected from creditors if you are sued and you can let the trustee know that you don’t need money, so no distributions happen, if you are thinking a divorce is coming.”

You can keep it in a separate account and set it up so that no distributions come out, he said. Even if some distributions come out, the impact on alimony should be minimal as you have not been receiving income for a long time to support yourself and your spouse, he said

“I like trusts as it keeps things simple and prevents people from messing things up,” he said. “What I mean is that most people don’t keep the assets separate, and they lose that protection. They buy a home and title it jointly, making it a marital asset. They put the funds in a joint investment account, making it a marital asset.”

Even if you keep the assets separate, there is often pressure to comingle the funds, Lynch said.

“The conversation goes like this. `Why do we have our assets, and you have a separate account with your assets? Why is not all our stuff combined?,” Lynch said. “If a trust is used, the response is simple: `This is the way my parents set it up and I have no control over it.’

It avoids the argument and protects the assets as it is not “your” money but money in a trust, he said.

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This story was originally published Nov. 1, 2021. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.