WaterLIFT mufflers typically have inlets on top or in the lower part of the muffler body, and outlets out the top or the upper part of the muffler body.
Best practice would call for raising the outlet run as high as practical (max 4ft conservative) to make the exhaust quieter and reduce the possibility of backflooding.
Not sure I follow your gen setup, but:
Combining generator exhaust and main engine exhaust should be frowned upon for a variety of reasons. One common treatment is to dump the gen exhaust into the main near the transom outlet. This creates a megaphone effect with the gen exhaust when the mains are off.
These are separate systems, maybe with different backpressure limits, and gas and water flows. They should be plumbed seperately.
It's just bad practice to combine these exhaust systems, and whatever reason for it, just doesn't fly.
$0.02