Lump Sum Alimony
Alimony can be paid in monthly installments, or all at once. The “lump sum” is also known as a “alimony buyout” or “spousal support buyout”.
Pros and Cons
In general, in family law, a pro for the “payor” will also be a “con” for the recipient.
Pros of RECEIVING lump sum alimony
If you are good at managing your money, I recommend receiving it all at once.
Once you receive it, it’s all yours to keep. It’s not modifiable if the payor loses the job, dies, etc. You can invest it the moment you receive it – and as we all know, time is money.
One you remarry, monthly spousal support usually goes away. Better to take the money upfront, and not have to put your love life on hold.
Typically, your earnings will reduce the amount of alimony to be received. If you want to become self-supporting, it behooves you to take the lump sum alimony so your future earnings won’t impact it.
Cons of RECEIVING lump sum alimony
Irresponsible Recipient May Squander it
It happens to lottery winners all the time – bankruptcy. If the recipient of a large sum of money is irresponsible, better reconsider.
May Impact Financial Aid
A large sum of money may erase any qualification of financial aid. Something to think about.
Pros of PAYING lump sum alimony
Once you pay it, there is no more monthly obligation and your ties are severed.
Don’t Need to Worry About Future
If you get a huge raise, or the recipient loses the job, it doesn’t matter. The payor has already fulfilled his obligation.
Cons of PAYING lump sum alimony
Paying lump sum means it’s all paid. This would suck if the recipient thereafter ran off immediately got remarried.
Or the payor lost his job immediately thereafter.
Hardship to Come Up with Money
It’s not easy to come up with a lump sum. So the payor may need to be frugal the first few years after paying a lump sum.
Trump’s Tax Cuts and Job’s Act eliminated the deductibility of spousal support on the federal level. However, you can still deduct on a California return.
You will lose tax deductibility if you pay the amount upfront.
DON’T FORGET TO NEGOTIATE A DISCOUNT IF YOU ARE PAYING LUMP SUM!
There is absolute value in CASH TODAY.