Making monthly alimony or spousal support payments can frustrate a paying spouse. Some people may want to avoid monthly payments because they don't want to risk the consequences of missing a payment one month. Others may wish to make a lump sum payment to move on with their lives and not have a monthly reminder of a prior marriage.
Like collecting a lottery winning all at once instead of over the years, you may be able to pay off your entire amount of alimony at once and avoid making monthly payments. Read on to learn about avoiding monthly alimony payments by making a lump sum spousal support payment instead, as well as the benefits and tax consequences of receiving lump sum payments.
Types of Spousal Support
Spousal support helps an ex-spouse keep a similar standard of living as when the couple was together. There are many types of alimony or spousal support:
- Temporary spousal support is sometimes ordered during your divorce or as part of a legal separation.
- Rehabilitative alimony or spousal support is paid until your ex-spouse becomes self-supporting or gets remarried.
- Permanent spousal support may be required if you were the primary earner during the marriage. It depends on the length of the marriage, your ex-spouse's earning capacity, or their physical condition and need for financial support.
- Reimbursement spousal support is when one spouse has worked to put the other through school or training to increase their income.
Spousal support is not considered child support or part of child support payments. Making a lump sum payment of alimony will not change child support obligations.
How to Avoid Monthly Spousal Support Payments: Use Lump Sum Payment
If you have a court order to pay spousal support or spousal maintenance, you may be able to avoid a monthly payment and pay all your alimony in one lump sum. A lump sum payment is helpful if you are still determining the amount of time you may need to pay spousal support.
Your ex-spouse and the court will likely have to approve the lump sum payment agreement. Several states allow a spouse to pay the total alimony amount in one lump sum. Usually, the total sum must equal the total amount of future monthly payments.
Benefits of Taking Lump Sum Spousal Support
There are benefits to receiving a lump sum alimony payment. First, if you decide to take a lump sum payment, you may get more money than if you accept monthly payments over many years. You may receive more because a lump sum payment must equal the total amount of future payments, and the lump sum is not discounted to the current value.
Second, you won't have to worry about collection problems with a lump sum alimony payment. Should the payor stop making payments, the supported spouse must go to court and get court judgments that order their former spouse to continue making monthly alimony payments. If you opt for a lump sum alimony payment, you can avoid these enforcement problems as you will receive all your alimony upfront.
You will also avoid any future challenges to your spousal support order. If your ex-spouse's income changes, they could return to court and ask to lower the alimony award. If the receiving spouse's situation changes, they become self-sufficient and self-supporting, and the paying spouse may argue that a permanent alimony order is no longer needed.
Tax Consequences of Lump Sum Payments
Keep in mind that there could be tax consequences if you decide to accept a lump sum payment for your alimony. Most spousal support payments are not deductible from the payor spouse's gross income.
A lump sum payment labeled "alimony" or "spousal support" may be taxed for the total amount on your tax returns. But, if that same payment is instead classified as a "settlement," this may allow you to avoid taxes. These rules can vary by state or federal income tax laws. It is important to talk to your divorce attorney about these issues.
You should consult a family law attorney or tax expert that can help you determine how best to take a lump sum payment. The money you spend to hire an expert to help you could be pennies compared with the cost of income taxes you may owe.
Need Help Avoiding Monthly Alimony Payments? Talk to an Attorney
Spousal support payments, whether you want a monthly payment or a lump sum, come with benefits and drawbacks. You should know the consequences of your choices to make the right decision. If you would like to learn more about your options for paying or receiving alimony, consider consulting with a qualified family law or divorce attorney in your area.