In a previous post, we explored the many different ways that alimony can be distributed. One such form was a lump sum payment. Here, we will explain some of the benefits in opting for a lump sum payment over the other options.

Tax

If you collect a lump sum payment that is labeled as “alimony,” it may be taxed for the full amount in the year that it is received. But, if that same lump payment is instead classified as a “settlement,” this may allow you to avoid being taxed on that amount. Under Georgia law, alimony is included in gross income when it is received as period payments. These are payments that are sent to the other party bi-monthly or once every month. Therefore, the party receiving these alimony payments will report the alimony amount in addition to any other received income when determining taxes owed. However, a lump sum payment, which is just one large payment made one time, is excluded from income as a property settlement.

May be More Money in the Long Term

If you decide to take a lump sum payment, you may receive more money than if you decide to take periodic payments over the course of many years. This is because a lump sum payment must be equal to the total amount of future payments. The lump sum is not discounted to present day value. Therefore, having a certain amount of money today is more likely going to be worth more than ten years from now.

Investments

This goes hand in hand with the previous benefit. With a large upfront payment, you will have the opportunity to invest this money at one time rather than small additions over a large period of time. The same percentage of interest allocated to one large amount will result in a greater return than that same percentage of interest allocated to a smaller amount.

Modification

A lump sum payment is not subject to future modifications by the court. Once the Order is entered and payment is made, that is the end of it. However, if a couple were to opt for periodic payments, a future modification may occur as long as a party is continuing to receive these alimony payments. Modification can result in an upward or downward shift in the amount of future alimony payments depending on the specific situation alleged.  

Collection

Lastly, once a lump sum alimony amount is paid, it is not subject to any future collection issues.  These can arise when one party fails to make timely payments in the amount ordered.  Conversely, periodic payments may be subject to collection concerns for years until the amount is paid in full.  

If you are contemplating a divorce and alimony is a concern for you, please contact the attorneys at Vayman & Teitelbaum. Our experienced team will work with you to determine the appropriate type of alimony for your situation. We will then advocate for you and ensure that your rights are protected.