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Should I Accept A Lump Sum Alimony Payment?

Posted By Attorney Jim Cairns || 16-Mar-2013

A lump sum alimony payment, also known as alimony in gross, can be negotiated in a marital settlement agreement during an uncontested divorce. Lump sum payments are an alternative to the well-known scheduled periodic alimony payments, for example monthly alimony payments. Each divorce case is unique, and a lump sum payment is not necessarily better or worse. It depends on the situation.

If you find yourself struggling with whether you should agree to a lump sum alimony payment, it may be prudent to hire a professional financial expert and possibly a tax accountant. Though the expense of having another member on your uncontested divorce team may mean putting up some extra monies now, the long term financial implications can be worth the initial investment in a qualified professional.

There are pros and cons to receiving a lump sum alimony payment. The immediate advantages are that one spouse is freed from further alimony payments, and the other spouse receives the monies upfront and quickly.

For the spouse who receives the lump sum payment (the payee) there are some long term advantages. The payee does not have to concern herself with payments being made on time, and thus he or she doesn't have to worry about paying her bills late. If the payer dies, alimony payments are likely to end, as well. In the absence of life insurance on the deceased spouse, the payee can suddenly be at a significant economic disadvantage.

Generally, there are conditions when the alimony payments could stop. Entering into a marriage or cohabitation can be grounds for decreasing alimony payments. Lump sum alimony agreements frees the payee spouse to marry when she wants, without worrying about the financial implications on his or her alimony payments.

Moreover, a payee is not subject to his or her ex-spouse's employment. If the payer becomes unemployed, this may adversely affect alimony payments. Also, if the payer's income declines, so can the alimony payments. On the other hand, if the payer's income increases the payee will not have much recourse to have additional monies awarded.

Payees do take a certain amount of risk when receiving a lump sum payment. Income taxes can be affected. A qualified financial advisor and accountant can give you an accurate financial portrait. If the payer declares bankruptcy after an uncontested divorce, creditors may try to recover some of the debt from the lump sum payment – sometimes all of the payment received.

Consider your decision carefully. Normally a lump sum payment cannot be entered into a petition for a divorce court after your agreement has been signed and filed with the court. This type of decision tends to be permanent.