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Should you consider taking your alimony in a lump sum if offered?

On Behalf of | Feb 20, 2024 | Division of Assets and Debts |

California law allows a number of types of alimony. Most of these are temporary to allow the lesser-  or non-earning spouse a chance to acquire the experience, skills, connections and/or education they need to become self-supporting after divorce. 

There’s also a permanent alimony option that can be sought if a spouse can’t be expected to return to the workplace (for example, because of their age or health). It can also be used when there’s a significant difference in income and assets between the divorcing spouses. These types of alimony are typically paid monthly and end if the payee spouse remarries.

There’s also a lump-sum option. Just as the name suggests, the payor spouse pays it in one lump sum – typically when the divorce is finalized. It’s generally paid instead of (or as part of) a property settlement.

Certainly, this isn’t an option for most people, but what if your soon-to-be ex has enough of their own liquid assets to be able to make this lump-sum payment and wants to? Should you accept it?

Advantages of lump-sum alimony

There’s a lot to consider. Of course, you’d need to determine whether the amount is enough to provide you with the financial help you need for as long as you need it. It’s best to discuss that with a financial advisor in addition to your legal team.

There are certainly potential advantages to getting lump-sum alimony. For example:

  • It can help you cut ties with your ex if you don’t have children.
  • You don’t have to worry about late, missed or partial payments – or about your ex losing their job or suffering other financial hardship.
  • If you invest it wisely, you can earn a healthy income without touching the balance. 

Since alimony is no longer considered income for tax purposes, you don’t have to worry about being knocked into a higher tax bracket when you receive the payment.

When could a lump-sum payment be a bad idea?

If the thought of a large amount of money sitting in an account (even an investment account) unused is too tempting to ignore or if you know you’re a sucker for a “can’t miss” investment, this might not be the best option. You certainly don’t want to blow through it in the weeks or months after your divorce and have nothing left. You need to be honest with yourself about whether you can handle it responsibly. As noted, no one should make this critical decision without sound financial and legal guidance.