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The Divorce Encyclopedia
Structured Settlement

Term Definition Structured Settlement - a series of smaller payments paid over time, as opposed to a lump-sum payment.
Application in Divorce A structured settlement is the opposite of a lump-sum settlement. In this routine, a series of payments over a period of time comes to more than the agreed upon settlement sum because the recipient receives interest to compensate for the delayed payment.

Structured settlements are used in the distribution of marital property. Suppose Rufus wants to keep the home he and Rhonda bought during happier times, but the agreed upon settlement sum is more than he can handle financially. Rufus can do this, however, with a property settlement note. In this arrangement, Rufus pays Rhonda a sum for a negotiated length of time at current interest rates. The money is a division of property, so it is not taxable. The recipient does pay taxes on the interest, not the principal. The note is normally collateralized. In this arrangement, Rufus gets the house; Rhonda gets an income stream.

Unlike lump-sum settlement, which make for a clean financial break, structured settlements are a continuing financial tie between former spouses.

Both lump-sum settlements and structured settlement demonstrate the variety of ways a marital estate can be divided so that former spouses both get something of what each wants.

The terms and conditions of marital settlements, in addition to he amount, are all open to negotiation.

Compare Lump-Sum Settlement.

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