(This is part 2 of a 4-part blog post on the subject of the assignment of various types of income to a special needs trust. This post discusses the assignment of alimony to a special needs trust. The first post in this series can be found here.)

Alimony and Child Support

In a nation with already staggering divorce rates, it has been estimated that the divorce rate for families with disabled children is as high as 85%. Hines, A. and Margolis, H., Divorce in Special Needs Planning, The ElderLaw Report, Volume Xxii, Number 5, December 2010.

In the context of divorce, alimony and child support payments can have unintended consequences on the public benefits of a disabled spouse, or on a divorcing couple’s disabled child.


As set forth below, alimony payments may be irrevocably assigned to a self-settled special needs trust without affecting that spouse’s eligibility for public benefits.

For purposes of SSI, alimony or spousal support is generally categorized as unearned income. Consequently, after the $20 disregard, alimony or spousal support will reduce SSI benefits on a dollar-for-dollar basis. Milender, F., Divorce and the Disabled Spouse, The ElderLaw Report, Volume XXII, Number 5, December 2010 (citing POMS §SI 00830.418).

However, the POMS expressly permits the irrevocable assignment of alimony payments to a special needs trust:

A legally assignable payment … that is assigned to a trust, is income for SSI purposes unless the assignment is irrevocable. For example, alimony payments paid directly to a trust as a result of a court order, are not income. If the assignment is revocable, the payment is income to the individual legally entitled to receive it. POMS §SI 01120.200.G.1.d. (emphasis supplied).

According to one practitioner,

It is important that the trust be “created” by the court and not just by agreement of the parties in order to meet the requirements of the law and avoid the risk that the Social Security Administration will find that the trust was created by the individual or the spouse [citing POMS §SI 01120.203B.f.]. If the alimony payments are irrevocably assigned to the trust, the payments are not counted as income for SSI purposes, POMS SI 01120.200G…. Support payments or alimony should not be placed in a third-party [special needs] trust. These payments belong to the beneficiary of the trust, therefore placement into a third-party trust would constitute a transfer of assets for Medicaid and SSI purposes and would result in the imposition of a penalty period. Milender, F., Divorce and the Disabled Spousesupra.

The issue of alimony paid to a special needs trust on behalf of a disabled divorcing spouse was addressed by our Appellate Division in J.P. v. Division of Medical Assistance and Health Services, 392 N.J. Super. 295 (App. Div. 2007). In reaching its conclusion that alimony paid to a SNT pursuant to a divorce does not constitute income to the Medicaid recipient spouse, the J.P. court provided an analysis of the federal and state law governing the issue. It concluded that, although state regulations would ordinarily impose a penalty for the transfer of “assets” (including income) when the individual does not receive those assets because of a court order entered on his/her behalf, that penalty does not apply to assets transferred to a court-ordered SNT. (As noted in Mazart, G. and Spieldberg, R., A Public Benefits Conundrum: Matrimonial Settlements, New Jersey Lawyer Online, www.njlnews.com/articles/2007/10/27/in_re_magazine/f5-mazert.txt, the Medicaid recipient in J.P. was under age 65, so she was able to establish a self-settled special needs trust; however, if she had been over age 65, a pooled trust would have been an alternative.)

The J.P. court relied upon the State Medicaid Manual, HCFA Transmittal 64 §3259.7B1, which provides that, “[w]hen the right to income placed in the [SNT] actually belongs to the trust and not to the individual the income does not count under SSI rules as income received by the individual.” It rejected Medicaid’s assertion that a special needs trust can be used to shelter resources but not to shelter income, and concluded that “Medicaid’s attempt to distinguish between alimony and equitable distribution placed in the trust has no rational or legal basis.”

(Upcoming blog posts discuss the assignment of child support, annuities, IRAs and other retirement benefits to a special needs trust. The entire article, including all footnotes which are omitted in the blog posts, can be found on my website by clicking here.)