Spousal support can be a contentious issue when going through a divorce, especially regarding the amount and duration of support. While periodic payments are generally the norm, the Court nevertheless has the power to award a lump sum payment of spousal support.
What is Lump Sum Spousal Support?
Lump sum spousal support is exactly what it sounds like. Instead of periodic payments of support over the course of years, the Court may order the payor to pay spousal support in one large payment. A judge may even order a lump sum payment to be made where neither party specifically asked for it. However, it is important to remember that lump sum payments are the exception to the general rule of periodic payments. Therefore, to justify ordering a lump sum payment there must be a valid reason for not making periodic payments. Some factors that a Court may consider in determining whether a lump sum award is appropriate include:
- whether periodic payments will be difficult due to the payor’s hostility, continual under-employment, or precarious employment;
- whether the payor has sufficient assets to pay a lump sum;
- whether the payor is about to leave the jurisdiction or has already spent time outside of it;
- whether making a “clean break” between the parties is desirable;
- whether a lump sum payment would effectively amount to an impermissible redistribution of family assets or capital;
- whether a lump sum is desirable as start-up money for the recipient’s retraining or upgrading to become self-sufficient (e.g. to go back to school);
- whether a lump sum is desirable to provide a nest-egg for the recipient;
- whether a lump sum is desirable to compensate the recipient for lost pension benefits, reduction in career opportunities and earning potential, or the enhancement of the payor’s career opportunities and earning potential;
- whether the marriage was for a short period of time (short marriages may benefit from a one-time payment);
- whether there has been a shortfall in the payment of interim support;
- whether the recipient has started a new relationship (and may be less dependent on continued support); and
- whether a lump sum is desirable to help the recipient pay off debt.
It is important to remember that the same principles that guide periodic payments, namely: the length of cohabitation; the functions performed by each spouse; any agreement between the spouses; the recognition of economic advantages and disadvantages arising from the marriage and its breakdown; distributing the financial consequences of child care; the relief of economic hardship; and the promotion of self-sufficiency, also apply to determining whether a lump sum payment is appropriate. Additionally, Courts are not limited to making either a periodic payment or a lump sum payment, they may order a mix of the two.
Where a lump sum support order is made, it is critical that it be as accurate as possible. As a lump sum payment involves an implicit determination of future events, any mistaken assumptions are magnified after the lump sum payment is made. Furthermore, once a lump sum has been paid it cannot be varied like periodic payments.
When Is Lump Sum Support Useful?
From the factors listed above, a lump sum payment may be appropriate in a hypothetical situation where the parties have been married for two years, the payor has substantial assets, the payee sacrificed their career to support the payor, the payee requires funds to go back to school, and the parties are so hostile that a “clean break” is desirable. A lump sum payment is not desirable or permissible to merely redistribute family assets or capital or to shift a tax burden from the payee to the payor.
It is important to note that unlike periodic spousal support payments, where the payor can deduct the amount of support from their taxable income and the payee must include the support in their taxable income, lump sum payments are not taxable in the same manner. Lump sum payments are generally not taxable, unless they are made to bring overdue periodic payments up to date or are specifically ordered as retroactive payments. Therefore, lump sum payments may also be useful for the recipient’s tax purposes.
To figure out whether a lump sum support payment is the right choice for you, contact us toll-free at 1-855-247-DIVORCE or email info@feldsteinfamilylaw.com to book a free initial consultation.