Is Lump Sum Alimony Right for You?
Alimony (which is also commonly referred to as a spousal support or spousal maintenance) is usually paid at regular intervals. The fundamental purpose of alimony is to keep the financially dependent spouse in the lifestyle that was enjoyed during the course of the marriage. In many cases, this is not possible and the alimony is paid to keep the dependent spouse in a lifestyle as close as possible to that which they enjoyed during the course of their marriage. Monthly or biweekly alimony payments are quite typical and are often linked to the frequency that the alimony obligor receives his or her pay. Having alimony paid at regular intervals can be very helpful for budgeting purposes. for example, if you are receiving $4,000 per month, you can develop your budget to include that income and better manage a lifestyle that fits your means. However, there are circumstances and situations where taking a lump sum alimony payment may be advantageous. It is definitely something you at least want to consider when negotiating alimony obligations in New Jersey. I use the word “negotiating” because typically the court will not order lump sum alimony.
One of the significant advantages to lump sum alimony is that the amount of alimony is guaranteed and not subject to a reduction in your ex-spouses income. If you have assets and your soon-to-be ex spouse's earnings history is questionable lump sum alimony may be preferable. A change in your ex spouses income can be considered a change in circumstance which could lead to a reduction in alimony. See, Four Reasons to Modify Alimony in New Jersey With lump sum alimony the recipient does not need to worry about the payor's current income and ability to pay alimony.
Missed or Late Payments
Another advantage is that you do not have to worry about your ex spouse missing payments or delays in receiving your money. With an ex-spouse who cannot or will not make regular interval alimony payments your remedy may be limited to filing a Motion to Enforce Litigants Rights. The cost and aggravation associated with returning to court is avoided with a lump sum payment of alimony.
Cohabitation and Remarriage
With lump sum alimony the recipient does not need to worry about losing their support if they cohabitate or get remarried. Many people are aware that marriage automatically terminates the obliges right to spousal support. But the issue of cohabitation is significant and often leads to extensive and expensive post judgment litigation. Someone who accepts lump sum alimony and then either lives with their paramour or becomes remarried will not lose or have to repay the lump sum alimony. For more on cohabitation in alimony see, Terminating or Reducing Alimony Due to Cohabitation
Lump sum alimony does not need to be insured. Most courts will require the alimony obligor to purchase and maintain life insurance to secure the alimony obligation. This not only adds the additional expense of the life insurance premium but it also can be problematic when the obligor's health is such that he or she is uninsurable. Making sure that the obligor maintains the required life insurance can be time-consuming and aggravating. Ultimately, if you determine that your ex-spouse does not have the required life insurance, your remedy is to return to court for a Motion to Enforce Litigants Rights.
One significant consideration involving lump sum alimony is it's tax treatment. Due to alimony recapture rules, lump sum alimony is typically not deductible as income by the obligor and not includable as income to the oblige. Said another way, the person receiving the alimony does not have to include it in their income for tax purposes and the person paying the alimony cannot deduct it from their income for tax purposes. Accordingly, when negotiating a lump sum alimony payment you will need to consider the net tax effect of the transfer of the money. By way of example, a $4000 a month alimony obligation for four years would yield $192,000 in alimony over the four years. For an alimony obligor that makes $260,000 a year, the tax savings is 35% on the alimony paid or $16,800 each year for a total of $67,200. It would not be uncommon to negotiate a lump sum alimony payment of $124,800. This represents the obligor's after-tax net payments to his or her ex-spouse. This calculation does not consider the discount rate or time value of money. For more information on alimony and taxes, see Is My Alimony Payments Tax-Deductible?
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Take the time to carefully consider all of your alimony options when going through a divorce. If you or a loved one have questions regarding alimony, the enforcement of alimony orders, or the modification or termination of alimony orders contact us or call us at (856)546-1350 to schedule a confidential consultation with our experienced New Jersey alimony attorneys.