Spousal support options – lump sum or periodic payments?
By AdvocateDaily.com Staff
“The court of appeal has said both are valid options,” says Nathens, partner with Nathens, Siegel Barristers LLP.
“In the courts, the overwhelming majority of support orders are periodic,” he says. “Judges are somewhat reluctant to order lump-sum support because they don’t like putting an end to people coming back if there’s a material change in circumstances. But if you’re doing an agreement, it’s more like a 60-40 split of periodic/lump sum.”
Spousal support paid on a periodic basis is often a good option for younger couples with a recent separation because, unlike a lump sum, these payments will be subject to variation, Nathens says.
“If one person’s income goes up or down, or they get sick and can’t work or become disabled, they can always change it. It’s the preference for couples with younger children where the future is still unknown,” he says.
But a lump sum is better if the parties want a full and final resolution, Nathens says. They may be an older couple with one party closer to retirement so that the period of payments wouldn’t be long, or they may be a professional couple without children, he says.
Well-off couples might also choose the lump sum option, says Nathens, who recently had a case involving a husband earning $600,000 a year and a wife earning $300,000 with two young children.
“The husband had the option of paying $9,000 a year for eight years or a $450,000 lump sum. I suggested he may want to go with the lump sum because then it’s done,” he says.
The amount of a lump sum payment will be less than adding up the total of monthly payments because tax factors are taken into account, Nathens says.
If spousal support is paid monthly, the payor can deduct the amount from his or her taxable income, and the recipient must pay taxes on the income. When a lump sum is paid, lawyers use a software program to calculate the impact of tax factors on the one-time amount, which is reduced accordingly.
Lump-sum payments are good in the sense that they are predictable, Nathens says.
“If it’s done correctly, once it’s paid you don’t have to go back,” he says. “It’s good in situations where it’s easier to predict the future.”
However, Nathens cautions that there can be a downside.
“Say somebody pays a lump sum based on their income of $300,000 but loses their job the next day, and never gets a job that pays anywhere near $300,000 again — it’s too late. You don’t go back on a lump sum. Or a husband pays his ex-wife a lump sum of half a million dollars and the next day she marries a billionaire. He can’t ask for the money back.”
Paying spousal support on a periodic basis gives greater flexibility but there’s uncertainty around how long you’re going to have to pay and how much, Nathens says.
“People get anxious about the ongoing obligation,” he says.
The decision often comes down to cash flow — many people simply can’t afford to pay all their spousal support up front, Nathens says.