The possibility of paying alimony in a lump sum

by | May 25, 2016 | Alimony |

After a divorce, many California couples are confronted with the requirement that one spouse pay alimony to the other. This can be an ongoing issue both financially and personally. Those who pay or are receiving their alimony on a monthly basis need to know that they could have a lump sum option. This might be attractive to both parties.

Knowing the options and the pros and cons is imperative. A lump sum will generally have to be approved by the court and agreed to by both spouses. Most states allow this provided that the payment in a lump sum equals what would be paid for the duration of the monthly payments.

A lump sum is beneficial as it provides the recipient with the money all at once and it can end up being more than what would be received through an installment plan. The declining value of present day money will not be an issue. It will also avoid any possible problems with collecting if it is all paid at one time.

Former spouses who accept the alimony in a lump sum need to be cognizant of the tax ramifications. A lump sum that is referred to as alimony in the divorce order can be subject to income tax on the entire amount in the year it is received. It is possible that it will be considered a ‘settlement” instead of alimony. If that is the case, then the recipient may not be taxed. These factors have to be taken into account by both parties when deciding on a monthly payment or a lump sum. Speaking to their respective attorneys about the pluses and minuses of alimony being paid in installments or in one lump sum can help divorcing spouses to make an informed decision.