Should You Take a Lump-Sum Property Settlement or a Lump-Sum Alimony Payment?

In divorce, words matter. Sometimes, they matter a lot.

One situation in which they matter a lot is when you’re deciding how you’re going to take a lump-sum divorce payment.

(Note: What I mean by “lump sum” is you get all of the money now instead of spreading it out over time. For example, a lump-sum payment would be $50,000 by Friday. A payment over time would be $500 every month until you receive $50,000.)

Generally, there are two types of lump-sum payments made in Utah divorces:

(1) Lump-sum alimony, or

(2) Lump-sum property settlement.

Why does it matter which you take?

Taxes. It’s all about taxes.

As it stands right now, the person who pays alimony can write off the alimony on taxes. (This will change in 2019, thanks to the new federal tax overhaul bill.)

Correspondingly, the person receiving alimony has to report alimony as income on taxes.

This means if you take a lump-sum alimony payment, you will be taxed, and your ex will receive a tax break.

Contrast this with a property settlement.

Property settlements are nothing more than one person taking more property from the martial estate.

Since it’s not a transfer of wealth (alimony transfers income from one person to another), a lump-sum property settlement is a non-taxable event.

No one pays taxes, and no one gets a tax break.

Let me give a concrete example of what I’m talking about.

Scenario 1: Husband wants to pay Wife a $25,000 lump-sum alimony payment. If wife accepts this payment, Husband will write off the $25,000 payment on his taxes, which means he will pay less in taxes. Wife will have to claim $25,000 in income on her taxes, which means she will pay more in taxes.

Scenario 2: Husband pays Wife a $25,000 lump-sum property settlement payment in the divorce. The payment is a non-taxable event, so Husband cannot write off anything on taxes, and Wife does not have to claim the $25,000 as income.

Conclusion

In the end, if you’re the one receiving a lump-sum payment, you want to make sure it’s called a lump-sum property settlement, otherwise you’ll be paying taxes on the payment and giving your ex a tax break.

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I would hands down suggest Brown Family Law. Nathaniel helped me with my divorce, and he was very knowlegeable and knows his stuff. He helped me file a motion, get somethings changed in the original decree, helped me understand the terms they use, helped me understand how child support is calculated along is all the financial aspects associated with divorce case. He also is very responsive to phone calls and emails which was very helpful whenever I had small questions. Thank you Nathaniel!

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Overall from start to finish the best experience to have dealing with a time that is difficult.Andrew Christensen is very professional and out going to make this situation the best it could be and worked hard to make sure the divorce was fair for me.Over all, this firm really cares and treats you as a family or friend and just not a client, down to Marco Brown taking time to see how I was doing and offer to help in any way possible during my divorce while I was there for my first initial meeting.I would highly recommend anyone that has to go through a divorce to really reach out to the Brown Family Law firm and see for your self the experience I was able to receive from a top notch law firm.

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Should You Take a Lump-Sum Property Settlement or a Lump-Sum Alimony Payment?

In divorce, words matter. Sometimes, they matter a lot.

Why does it matter which you take?

Let me give a concrete example of what I’m talking about.

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