Spousal Support: Lump Sum vs Period Payments
Spousal support is included in many separation agreements and Court Orders. While the issue of whether a spouse is entitled to spousal support is addressed in a different blog, this blog, Spousal Support: Lump Sum vs Period Payments, discusses what form the support will take. Spousal support traditionally comes in two forms: lump sum or periodic (generally monthly) payments.
In a lump sum situation, the spouse paying spousal support (the “Payor”) transfers assets or money to the receiving spouse (the “Payee”) when the agreement is signed or when the Court Order is made. Once that transfer is made, there will be no more spousal support payments. For periodic payments, the Payor pays a certain amount of money to the Payee on a predetermined schedule, usually monthly. The default option is periodic payments.
If the matter goes to a trial, the Court is more likely to award lump sum support (versus periodic payments) if any of the following circumstances exist:
- There is a real risk that the Payor will not make the periodic payments;
- The Payor is able to make a lump sum award payment;
- The Payor has not made proper financial disclosure;
- The Payor has the ability to pay lump sum but not periodic support; and
- Lump sum support can immediately satisfy an award of retroactive spousal support.
The advantages and disadvantages of lump sum support will depend on the facts in each individual case. Some advantages may be terminating ongoing contact between the spouses, providing money or assets to meet an immediate need of the Payee, ensuring spousal support will be paid where there is a real risk of non-payment of periodic support, and making it easier for a spouse to enforce lump sum support if the Payor does not pay. Some of the disadvantages may be that the spouses are locked into the lump sum amount and are effectively deprived of the right to apply for a variation if the Payor’s income goes up or their income goes down.
Periodic payments are taxable income to the Payee and tax deductible for the Payor so are often preferred by Payor’s for that reason. Lump sum amounts are not taxable or tax deductible.
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