Should You Opt For Monthly or Lump Sum Alimony?
When you divorce your spouse, the question of alimony always rears its head. Whether you’re the person paying it, or the person rearing it, there are several ways in which these funds can be disbursed, and you need to know the benefits and difficulties attached with each one.
The two most common methods of carrying out alimony payments is either through a lump-sum “buy-out” payment or otherwise by monthly payments.
Person receiving alimony, lump-sum
- One of the biggest benefits in taking a lump-sum alimony payment is that it does not require you to worry about your spouse suddenly stopping the payments you are entitled to, if they were to have financial issues down the line.
- Moreover, having a lump-sum payment means that you’ll have money upfront to make big purchases if required, like buying a house or even relocation costs.
- Lastly, the biggest benefit of taking a lump sum alimony payment is that you’ll probably end up getting more money, because the lump sum is never discounted to current day value.
- There may be tax issues if you get a lump sum alimony, and the full amount will be taxed for the year in which you receive it.
- If your ex-spouse were to declare bankruptcy at any point, their creditors may recover the lump-sum amount paid to you as part of the debt to be repaid.
Person receiving alimony, monthly payments
- If you anticipate any difficulty in terms of handling payments, a monthly payment scheme would help you with the funds you receive.
- The monthly payments will also be adjusted to present cost, so you may actually end up receiving more than you might have at a lump-sum settlement.
- If your spouse were to become unable to pay those payments at any point, you will lose out on your alimony.
Person paying alimony, lump sum
- Once you pay the lump sum, you have no further obligation to your former spouse. You’re done! Moreover, getting your alimony out of the way prevents your previous spouse from insisting you maintain your life insurance as security against on-going alimony payments.
- The lump sum can only be paid if you have the resources already available. Borrowing to pay alimony requires borrowing at exorbitant interest rates, which are not worth it. The worst part, though, is that the interest on these loans are non-deductible, so you don’t get a cash benefit.
Person paying alimony, monthly payments
- Alimony payments usually stop when the ex-spouse dies or remarries. Basically, if you know that your ex-spouse is likely to get remarried soon, insist on monthly payments because you may end up shelling out less money than if you had to pay them a lump sum.
- The monthly payments also help when you don’t have enough money to make a lump-sum payment, as they offer you the ability to steer clear of high-interest, non-deductible loans.
- With continuing payments, you’ll have to have your ex-spouse in your life for a while, until the payments end. Moreover, you might end up paying more money than you might have had to pay if you’d settled a lump sum on your ex-spouse instead.
When looking at alimony options, different options work for different situations. Find out the benefits and difficulties with each one and discuss it with your attorney before you proceed with your divorce.
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