Two Things To Beware Of When Accepting A Lump-Sum Alimony Payment

Getting your alimony payments all at once in one lump sum rather than spread out over several years has many benefits, such as avoiding non-payment issues and being able to get married whenever you want without fear of losing the money. This option is not without its drawbacks, however. Here are two issues you'll run into when opting to get a lump-sum alimony payment you need to be prepared for.

Discounted Payment

One of the top problems you'll face when accepting a lump-sum alimony payout is you may not get all the money you're owed. A few states calculate lump-sum alimony payments based on the monthly amount awarded multiplied by the number of years the responsible spouse is ordered to pay. For instance, if your ex was ordered to pay $500 per month for 4 years, he or she would have to cut you a check for $24,000.

In many other states, though, lump-sum alimony payments are treated like lottery winnings. Your ex can give you a discounted amount based on the assumption that you'll invest the money and grow it to the amount you are truly owed. For example, instead of $24,000, your spouse can apply a 20 percent discount and only give you $19,200 with the expectation you'll make wise investment choices.

The good news is you can negotiate the amount of the discount with your ex to ensure you get something fair. Thus, it's essential you hire an attorney, like those at The VK Law Firm, who can help work out this aspect of your divorce and prevent your ex from taking advantage of you.

Bigger Tax Payment

Another issue you'll face when accepting a lump-sum payment comes courtesy of the tax man. Alimony payments are considered taxable income, so you must claim it on your taxes every year you receive it. Thus, getting a large alimony payment in one year could mean you get hit with a bigger tax bill.

There may be ways to avoid this problem, such as putting the money in a trust fund and having it disbursed over a period of time. In this scenario, you would only be taxed on the money when you receive it, which can help keep your yearly tax bill low.

Alternatively, you can accept assets in lieu of the cash, which may come with fewer tax consequences. For instance, you can take your ex's interest in the family home instead of the lump-sump alimony payment, a move that may actually benefit you come tax time. It's best to consult with an accountant or tax professional for advice on the best moves to make in this situation to minimize your tax obligations.

For more information about lump-sum alimony payments or help negotiating one with your ex-spouse, contact an attorney.