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The Divorce Encyclopedia
Interest


Term Definition Interest - a general term meaning a right, claim, title or share of something.
Application in Divorce Most often, interest is the compensation paid the lender by the borrower for the use of money.

In equitable distribution of property, very often divorcing couples agree to a structured settlement, which is a series of smaller payments paid over time, or a lump-sum payment. Until the recipient receives the payment, the payee has lost the benefit of the money, while the payor enjoys the use of the property, including any income it may produce. A provision for interest insures that the recipient receives the full value of the settlement notwithstanding the deferred payments.

Structured settlements, which are a series of payments over time, are used in the distribution of marital property when one party has a valuable nonliquid asset, such as a house or a business that he or she wishes to keep, but little or nothing in the way in the way of other marital property to make an offsetting award. In this routine, a series of payments over a period of time comes to more than the agreed upon settlement sum because the recipient normally receives interest to compensate for the delayed payment. The difference reflects the time value of money, which is the concept that a dollar today is worth more than a dollar tomorrow because today’s dollar earns interest until tomorrow’s dollar is received.

The calculation of interest may become problematic. When interest is not imposed, as can be the case, the installment payments must be discounted to their present value. Otherwise, the distribution may be based on an erroneously high award value.

Moreover, the decision to award interest is a matter of discretion in many jurisdictions. When interest is ordered, courts frequently select the statutory interest on money judgment for deferred equitable distribution payments.

Some jurisdictions permit courts to award interest when one spouse unnecessarily delays the distribution of property.

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