Is a lump sum alimony payment better?

On Behalf of | Jun 21, 2016 | Divorce, Firm News |

Some New York parents may get frustrated with making monthly alimony payments. Some may wonder if there is a way to avoid them altogether, as the potential consequences for missing a payment can be severe. Others may wish to avoid making monthly alimony payments simply because they wish to move on with their lives.

Whatever the reason, if an individual has been ordered by a judge to pay alimony, making a lump sum payment may be the solution. Just like lottery payments, it can be spread out over a predetermined length of time or paid out all at once. In New York, a spouse can do this, provided the total sum equals the total sum of all the monthly payments.

Deciding to take a lump sum payment has its advantages for the receiving spouse, as well. For example, the individual may actually receive more money due to the fact that the sum is not discounted to present day value — having $1 today is very likely to be worth more in five or 10 years and allows the opportunity for reinvestment, too. Another benefit is that the spouse will not have to ever worry when it comes to the other spouse not paying and thereby experiencing collection problems.

However, there may be tax consequences for the receiving spouse if he or she accepts a lump sum of alimony. If the payment is classified as “alimony,” it could be taxed at the full amount in the tax year it is received. However, if that very same payment is labeled as a “settlement,” this could potentially allow the receiving individual to not have to be taxed on that total amount. However, it is highly recommended to consult an experienced New York family law attorney to help determine how a lump sum payment should be accepted as payment.  

Source: FindLaw, “Avoid Alimony Monthly Payment Programs“, Accessed on June 14, 2016


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