Taking Your Lumps: Lump Sum Alimony Settlement

Taking Your Lumps: Lump Sum Alimony Settlement

Most divorce settlements include some kind of spousal support agreement. However rather than the standard “pay every month for the rest of my life” arrangements, some couples are choosing to go with a lump sum agreement, also known as an alimony buyout. Divorce Financials family lawyer software makes the valuation of an alimony agreement easy.

Why Agree To Lump Sum Alimony?
For some people paying alimony, it is advantageous to pay a lump sum rather than a monthly amount. Since alimony payments are tax deductible, there may be a significant advantage to putting that deduction into one year’s taxes. If the payor has a large, liquid asset then it is not burdensome to pay such a large sum.

Payees can use the lump sum to fund expenses like tuition or a down payment on a house, two common situations for the newly divorced as people rebuild their lives. An alimony buyout can also be a better situation if the payor is likely to be unreliable or has erratic income.

Finally, many couples simply want to get the split over with and move on. Monthly alimony keeps them tied together whether they want it or not, while a buyout give closure.

How Do You Value Alimony?
Calculating the present value of an alimony agreement is a tricky prospect. It’s not a simple matter of multiplying the payments by the length of the agreement. Analysis must take into account the effect of inflation, taxes and investment to come up with a fair amount. The goal is that over time, the financial effect of the lump sum will be the same as the financial effect of the monthly payments.

Family law attorneys often lack the financial expertise to do such a complex calculation. They hire outside accountants who specializes in such matters. Unfortunately these professionals do not come cheap, and that adds significantly to the cost of the divorce. If only there was an alternative, like sophisticated divorce financial software that could handle the work for you.

Do-It-Yourself Alimony Valuation
Divorce Financials includes a built-in alimony analysis tool that couldn’t be easier to use. First the attorney enters the amount and duration of the alimony as well as the chance of continuation. Add some estimates on tax and interest rates, and the present value is calculated automatically. You can even enter different tax and interest rates for payor and receiver to get a best and worst case lump sum to give you room to negotiate.

You can also analyze only part of the alimony. For example let’s say a client needs $30,000 for an expense, you can play with the alimony figures to see how much of a reduction would equate to a $30,000 present value and suggest the reduced alimony plus the lump sum as an alternative arrangement. Although this is marked as an alimony tool, it can also be used for child support payments by indicating that the payments are non-taxable.

The more choices you give yourself, the better you can negotiate fair divorce and financial settlements for your clients.

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