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Can I pay my alimony obligation in a lump sum settlement?

On Behalf of | Sep 26, 2018 | Firm News |

Almost ever Maryland spouse who is going through the divorce process will want to get the divorce over and done with and not look back. However, the need to pay monthly spousal support payments can interfere with this goal. Monthly alimony payments are also vulnerable to the risk of missing payments or suffering a calamity that interferes with the ability to make payments.

Whether you’re the so-called “moneyed spouse” who is paying alimony or the spouse who is receiving alimony, if you’re worried about this possibility — and you want to finalize your alimony obligations in one fell swoop — you might want to look into whether you can negotiate a lump sum alimony payment deal, which the court will later need to approve.

Usually, the primary requirement in paying lump sum alimony necessitates that the total alimony be equal to the total of the future monthly payments. Unlike lottery winnings, where winners receive a lesser amount when they elect to receive their winnings in a lump sum distribution, the payers of lump sum alimony usually cannot receive a “discount.”

Here are a few benefits for the receivers of lump sum alimony payments:

  • A dollar today is worth more than a dollar tomorrow. It’s usually to the recipient’s advantage to accept all of the money now.
  • There’s less risk of having to take a delinquent spouse to court due to missed spousal support payments.
  • It can bring tremendous peace of mind to settle everything now.

There could be some tax consequences associated with receiving a lump sum alimony distribution that wouldn’t apply to receiving monthly distributions. That’s because if you receive all of the payment at the same time and it’s categorized as “alimony,” the full amount will face IRS taxation penalties. Conversely, the lump sum distribution could be taxed differently if it is categorized as a “settlement.”

If you hope to negotiate a lump sum alimony distribution in your divorce, make sure to discuss the matter with a qualified attorney so that you fully understand how to lawfully make the agreement, and so you understand the potential tax consequences associated with the deal.