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Lump sum payments: The monthly alimony alternative

For many individuals considering divorce, including those who may need to settle a high-asset divorce, the issue of spousal support payments may come up. Traditional alimony payments are spread out as monthly payments over several months or years. If the prospect of maintaining a relationship with your ex for that long doesn't appeal to you, you may be wondering about other options.

For some, there is an alternative to monthly alimony checks -- the lump sum payment. The lump sum payment still allows you to receive fair treatment for your role in the marriage but limits the amount of time that you need to maintain contact with your spouse after the divorce is final. A lump sum payment also comes with its own set of specific benefits.

An option that allows you to move on quickly

Lump sum payments are definitely an attractive option for those who wish to move on quickly after a divorce. You can pay off (or receive) the entire alimony balance at once. Individuals may be able to pay off future alimony payments ahead of time if the sum is equal to the amount that the other party would receive when it is broken down into monthly allotments.

Receiving a lump sum offers benefits

When you choose to receive alimony as a lump sum, you may find yourself reaping some unexpected benefits. Getting all of the alimony in advance helps you beat inflation. In addition, you have the chance to invest the money and earn even more income than the initial settlement awarded you.

Collections problems are sometimes an issue for individuals that receive alimony. It is unlikely that you will have this issue when there is only one financial transaction versus several transactions monthly. Receiving everything up front will limit any problems with a former spouse's inability to make payments.

Taxes and divorce

The financial transactions of divorce come with various tax implications. Changing alimony laws can make the difference in your settlement, especially for settlements made in the next few months. Arizona has its own policies about alimony, so any individual entering a divorce will want to understand both federal and state laws.

For now, if you receive a lump sum, and that sum is labeled as "alimony," you may be responsible for claiming the full amount as taxable income on your tax return. However, if the divorce decree calls the money a "settlement" that is part of the divorce, you may not be responsible for claiming the funds as income. Again, changing alimony laws may require you to get an outside, informed opinion and to check in with federal and state laws about alimony and divorce settlements.  

For more help

Since decisions about spousal support can come with big tax implications and long-term effects on your personal finances, you may want some more input on the issue. A decision to retain an experienced family law attorney can be a fruitful one. The guidance you receive may be useful in helping you protect your interests and achieve your financial goals after a divorce.

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Law Office of Brad Reinhart, LLC
7540 S. Willow Dr.
Tempe, AZ 85283

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