California Periodic vs Lump Sum Spousal Support (Alimony) Payments
Should you take a periodic or lump sum spousal support payout? Well, most people think of spousal support as a regular monthly payment that lasts for months or years after a divorce is finalized. However, it is possible to receive spousal support in one or more lump-sum payments. Each form of payment has advantages and disadvantages. The individual circumstances of the parties will decide which is preferable. Read on to learn more.
Will I Receive Spousal Support?
California family law allows spousal support (alimony) under certain circumstances with the goal of helping a dependent spouse to become self-sufficient after a divorce. Spousal support is appropriate when:
- One spouse earns significantly more than other.
- One spouse has a greater earning capacity than the other.
- One spouse has significantly greater assets than the other.
- A spouse has sacrificed his or her career to take care of the household or raise children.
- A spouse has contributed financially to the other spouse’s education, career, or financial success.
Use our California Spousal Support Calculator to estimate how much spousal support you may receive. Review our lesson on How Much Spousal Support (Alimony) May I Receive After a Divorce in California? for more information.
Advantages of Lump Sum Payments
Since the purpose of spousal support is to enable a dependent spouse to become self-sufficient, a lump sum payment may be used to obtain education or job training. The receiving spouse may be able to avoid student loans by using a lump sum payment to pay tuition. A large lump sum payment may also be used to buy property instead of paying rent. If the lump sum payment is large enough, it may also be used for investments like rental property, bonds, or annuities, and provide future income for the recipient.
A lump sum payment has the advantage of being safe from possible disruptions due to unforeseen events, such as the death of the payer or a significant change in the financial circumstances of the payer (such as retirement). The receiving spouse will not be required to give up their support upon remarriage unless the separation agreement or support order specifically states otherwise.
Advantages of Periodic Payments
Often, the paying spouse does not have the financial resources available to make a lump sum payment, in which case, periodic payments are the only option. If both options are available, however, periodic payments may still be preferable if the receiving spouse is not use to handling their own finances or uncomfortable with making investment decisions. Periodic payments may be modified if the financial circumstances of either spouse changes significantly, so if the receiving spouse loses their job or becomes disabled, they may be able to request an increase.
Since spousal support payments are taxed as income, a large lump sum payment will result in a larger tax obligation during the year it is received. Periodic payments are also taxed, but the tax obligation will be spread out for the duration in which the payments are made.
Consider all Factors and Seek Legal Advice
If both payment options are available, it is important to carefully consider the risks, benefits, and the tax consequences of each type of payment before making a decision. Talk to a California divorce attorney before signing any legal documents or discussing payment arrangements with your spouse.