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What is an Alimony Buyout?
While it’s not for everyone, an alimony buyout is something that may make sense in your specific situation, and is certainly something worth considering.
Alimony Buyout Defined
Simply put, alimony buyout (sometimes called lump sum alimony) is the payment of spousal support or its equivalent in one shot, rather than through periodic payments made over the course of a designated timeframe. This can be done in the form of a cash payment, where the payer writes one check for the entire amount of spousal support he or she will owe, or it can be done through property division. When it’s the latter, one party basically agrees to give up a portion of the assets they’re entitled to during the property distribution to the other spouse in lieu of paying alimony.
How is Alimony Buyout Calculated?
Calculating a lump sum alimony payment isn’t as straightforward as it may seem. While it does involve taking the amount of each periodic payment and multiplying that by the number of payments that would be due if alimony was to be paid out over time, there are other factors that are used to help determine the “present value” of the lump sum payment. Basically, a discount is applied to account for the fact that the value of a dollar today is higher than what that same dollar will be worth a year from now. Therefore, the amount of an alimony buyout may not necessarily match the exact total of periodic payments added up.
Lump Sum Alimony vs. Periodic Alimony
In addition to the obvious differences between payout method, alimony buyout and periodic alimony feature a number of other differences. For instance, a lump sum alimony payment is not subject to any future modifications by the court. In other words, once a couple negotiates and agrees upon a lump sum payment amount for alimony, it cannot be adjusted in the future, unlike periodic alimony payments, which can be increased, decreased or even terminated based on a number of circumstances. Additionally, the two types of alimony payments may have different tax implications.
Why Alimony Buyout?
Ask anyone that’s been ordered to pay spousal support how they feel about writing a check to their former spouse every week or month. You’ll probably be met with a few choice words. The fact is most people wish they could just move on after a divorce, sever ties and go their separate ways. Unfortunately, when there are alimony payments involved, it can feel as if this separation never truly happened, which can ultimately lead to frustration and bitterness on the part of the payer.
By choosing instead to settle on a one-time payment, or a disproportionate share of assets during the divorce, both parties are able to effectively end their dealings with one another (assuming there are no children involved) and move forward. This often results a more amicable resolution, avoiding years of potential bitterness and animosity between ex-spouses.
How Mediation Can Help?
The subject of alimony is a complicated one, and often involves a variety of deep-seeded emotions and strong feelings on the part of both spouses. A mediator can facilitate an open, honest discussion about the situation at hand and help you work together to negotiate a solution that works for everyone, whether it’s an alimony buyout or traditional periodic payment plan. The goal is to reach an agreement that you can both feel comfortable with and that will eliminate the bitterness and frustration that is often associated with spousal support situations.
New Jersey has five types of spousal support. Rehabilitative alimony is a short-term monetary award that allows a spouse to go back to school or obtain training to re-enter the workforce. Limited duration alimony is awarded in cases of a short marriage when rehabilitative alimony doesn't apply. Reimbursement alimony is awarded when one spouse makes a personal sacrifice so that the other spouse could receive professional or career training. Alimony pendente lite is awarded when a divorce is pending so that both parties can maintain their current standard of living until a final judgment is made. Finally, there is permanent alimony which is usually appropriate in long term marriages and typically terminates upon the death of either party or remarriage.
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