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Paying or receiving a lump sum of alimony could be worthwhile

Navigating a divorce proceeding can understandably be challenging emotionally. However, it can be just as complicated financially, especially if either you or your future ex-spouse will end up having to pay alimony.

The person whom the divorce court orders to pay alimony may assume that he or she will have to make an alimony payment each month for several years to come, which can be a frustrating thought. However, making or receiving a lump sum alimony payment instead is another option that can present benefits for both sides of the equation.

What are the advantages of making a large alimony payment upfront?

If you are responsible for paying alimony following your divorce, you might be nervous about what would happen to you if you missed a monthly payment. Making a large payment upfront eliminates this issue and also allows you to move on with your life without this reminder of your previous marriage. Both you and the other party must agree to the lump sum buyout before you can proceed with it.

What are the advantages of receiving alimony upfront?

If you are the recipient of alimony post-divorce, taking a large alimony payment upfront can help you in a multitude of ways. First, you will likely receive more cash than you would with monthly payments when you consider the factor of rising inflation today. Also, the sooner you receive those alimony dollars and invest them, the more earnings you may be able to generate in the end.

Furthermore, this would prevent the chance of you facing alimony payment collection issues, which can be a major hassle. If your former spouse fails to make the required payments, you must proceed to court to obtain a judgment ordering him or her to continue making the payments. However, the potential for these types of enforcement issues would be eliminated if you choose to take a large payment upfront.

Tax considerations

If you choose to receive a large alimony payment upfront, it is critical that you consider the tax consequences of doing this as well. If you classify the payment as alimony, the total amount might be taxed in the year you receive it. However, if you classify it as a settlement, you may be able to avoid this taxation issue. An experienced Minnesota family law attorney can guide you in making the best informed decision regarding the payment or receipt of alimony following your divorce.

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