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Spousal maintenance: Should I make a lump-sum settlement?

When it comes to spousal maintenance, the so-called "moneyed" spouse may need to pay the less-moneyed spouse a regular monthly payment, usually for a temporary period of time. For obvious reasons, however, the paying spouse might not want to stay financially connected to his or her ex on a monthly basis like this.

As a way of finalizing the divorce -- and all financial aspects relating to it -- many spouses choose to negotiate a one-time, lump-sum alimony payment.

Why do spouses negotiate a lump-sum alimony payment?

There are many advantages to negotiating a lump-sum alimony payment for both spouses. Here are a few of them:

  • The receiving spouse and the paying spouse don't have to worry about the consequences of an accidentally missed payment.
  • The receiving spouse may be open to receiving the money up-front because -- as a result of interest and inflation -- a dollar received today is always worth more than a dollar received in several years.
  • Paying all of the alimony up front allows the spouses to forget about their marriages and continue forward with their lives.
  • The receiving spouse may appreciate receiving the money up-front because it will give him or her more financial independence and control of the assets immediately.

A few things to keep in mind about negotiating lump-sum alimony

Regardless of whether you're the receiving or paying spouse, there are a few important points to keep in mind about lump-sum alimony distributions:

  • Spouses cannot negotiate a lump-sum alimony payment for less than the sum total of what the alimony payments should be if paid on a monthly basis.
  • Tax consequences will apply to the recipient of the alimony. In some cases, if the alimony is classified as a "settlement" as opposed to "alimony," the recipient will pay less in taxes. It's vital to speak with tax professional about this issue.
  • A judge will always need to approve of any alimony settlement that two spouses negotiate.

It's important to navigate your lump-sum alimony settlement in a careful and legally appropriate fashion to avoid future problems. Before you finalize any such settlement, make sure that you fully understand your legal rights and options.

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