If you are getting divorced and are making significantly more money than your soon-to-be ex-spouse, then there is a good chance that you will be forced to pay spousal support to you ex-spouse while they transition and find a way to earn enough to live on their own. While spousal support payments are typically done in periodic installments, you can forgo this by offering a buyout.
A spousal support or alimony buyout is much like how it sounds. Instead of paying smaller installments on a schedule, you instead offer the full amount up front in one lump sum. While this approach is certainly not for everyone, it can be beneficial in some cases, particularly in high net-worth divorces.
Benefits of a Spousal Support Buyout
The biggest benefit of considering a spousal support buyout is that it means your dealings with your ex-spouse are over with much sooner. Ask anyone who has had to write a check for spousal support every month after a messy divorce and they will tell you just how painful and just plain irritating it is. If you are getting a divorce, chances are you just want it to be done quickly and never have to see that person again unless you absolutely have to. By paying all your spousal support upfront, there is not much of a reason to have to talk to them again. However, while that is the biggest benefit, it is not the only one.
If you cut a check for the lump sum of the amount of spousal support, this also protects that amount from any future modifications by the court. This can actually benefit both parties of a divorce in its way since periodic payments can be raised for an ex-spouse, but they can also be lowered or even terminated as well. This means that by paying a set amount of money, no one has to gamble with the fact that they may either win or lose in the future.
Calculating a Spousal Support Buyout
At a glance, calculating a spousal support buyout seems pretty simple. You take the amount you would need to pay and then multiply it by the amount of periodic payments you would need to make. However, it is not quite so simple in reality. The buyout will also be modified by its present value to take into account that the same worth of dollar in your lump sum may not be the worth of a dollar a year or so down the line, something that would be built into periodic payments. This means depending on the court’s decision, you may pay a little higher or a little lower than the actual that you calculated on your own.
Furthermore, not all spousal support buyouts are paid for in money. Sometimes agreements can be met in property division. This means you give up a certain amount of what the courts deemed yours in the divorce to your ex-spouse as a replacement for money. This can mean your lump sum may be some cash, but it can also be a house as well to offset the amount of cash you would pay by the net-worth of the house. Unfortunately, once you get into this realm, things will become messier since it will be more difficult to calculate.
While spousal support buyouts aren’t for every divorce, if you have the cash to do it, it can make your future look a little brighter by not forcing you to write a check each month. If you are getting divorced and think this buyout might be a good option for you, contact us today.