The Lump Sum Order in Divorce

A lump sum order is a financial order made in divorce proceedings in England and Wales that requires one spouse to pay a fixed sum of money to the other. It is often used as part of a wider financial settlement – to help one spouse retain the family home, to compensate the other for their share of assets, or to support a clean break so that ongoing financial ties are reduced or ended. This article explains what a lump sum order is, when it may be used, and how it can help divorcing couples reach a fair financial settlement.

When negotiating a financial settlement in divorce one option for asset division is a Lump Sum Order.

This is often used to facilitate a Clean Break Order rather than parties agreeing to ongoing Spousal Maintenance Order. In this article, we will explore what a Lump Sum Order is, how it works, and why it may be a beneficial option for couples going through a divorce.

What is a Lump Sum Order?

It is a financial agreement that is made between two parties during a divorce. It involves one party paying a fixed amount of money to the other party as a one-time payment. This payment is typically made instead of ongoing spousal support or as a way to divide assets.

How Does a Lump Sum Order Work?

The Order is either agreed upon by both parties and approved by the Court. Or, if a couple cannot agree the Court will intervene and decide the detail of the Lump Sum Order which, once finalised, is legally binding. The amount of the lump sum payment is determined by the value of the assets being divided and the financial needs of both parties.

Once the Order is approved, the paying party will make the one-time payment to the receiving party. This payment can be made in cash, but can also be made through the transfer of assets or property.

A Lump Sum Order is commonly used where one party remains in the matrimonial home, where the property is transferred into their name in exchange for a lump sum payment to the other spouse.

A payment in the form of a lump sum is generally part of a larger divorce financial settlement, which may include separating more money and other assets like pensions, savings and debts.

How is the Amount of a Lump Sum Order Determined?

The detail of the Order can be agreed by the divorcing couple but if they cannot agree, the Court will intervene and make a decision on their behalf. The Court will consider a variety of factors when determining the amount of a the Order, including:

• The length of the marriage
• The earning potential of each party
• The standard of living during the marriage
• Any sacrifices made by one party to support the other
• The financial needs of each party, including any ongoing medical or care expenses
• Any existing assets or property that can be divided between the parties

The Court will also consider any prenuptial or postnuptial agreements that have been made between the parties. These agreements can help to guide the Court’s decision and ensure that the division of assets is fair and equitable.

Benefits of a Lump Sum Order

There are several benefits to choosing a Lump Sum Order as a way to divide assets during a divorce.

Clean and Final Agreement

One of the main benefits of a Lump Sum Order is that it provides a clean and final financial agreement for both parties. This means that there is no ongoing financial obligation between the parties, and they can move on with their lives without worrying about future payments or disputes.

Avoids Ongoing Spousal Support

In some cases, a Lump Sum Order can be used in place of ongoing spousal support. This can be beneficial for both parties, as it eliminates the need for ongoing payments and potential disputes over the amount or duration of support.

Protects Assets

A Lump Sum Order can also be used to protect assets from being divided in a divorce. For example, if one party wants to keep a family home or business, they may offer a lump sum payment to the other party in exchange for their share of the asset. This can help to avoid a lengthy and costly legal battle over the division of assets.

Tax Benefits

In some cases, a lump sum payment may have tax benefits for the paying party. For example, if the payment is made in cash, it may be tax-deductible. It is important to consult with a tax professional to understand the potential tax implications of a Lump Sum Order.

On the other hand the receiving party will need to consider Capital Gains Tax (CGT) however lump sum payments made as part of a divorce settlement are generally exempt.

Security

The prime benefit of a one-time payment is the assurance that your pay won’t be reduced even if you secure a job, become financially stable, or get remarried. There is also no fear of your spousal maintenance getting cut if your partner faces a financial downturn like job loss. Once the money is given, it’s completely yours.

Other Considerations

While a Lump Sum Order can be a beneficial option for asset division in a divorce, there are some considerations to keep in mind.

Financial Stability

Before agreeing to a lump sum order, both parties should consider their financial stability and ability to make or receive a one-time payment. If one party is unable to make the payment, it could lead to financial strain and potential legal disputes.

There is also the consideration of the receiving party’s ability to manage a large lump sum payment. The majority of people will invest or save the money but for some, especially those who struggle with debt, gambling or impulsive spending habits, a lump sum payment can be counter productive.

Fairness

It is important for both parties to ensure that the lump sum payment is fair and equitable. This means considering the value of assets being divided, any other financial agreements and the financial needs of both parties.

Legal Assistance

It is highly recommended to seek legal assistance when considering a Lump Sum Order. A divorce solicitor can help to ensure that the agreement is fair and legally binding and can also provide guidance on any potential tax implications.

How to Obtain an Order

To obtain an Order the terms must be approved by the Court. This typically involves filing a financial agreement with the Court, usually in the form of a consent order, and attending a hearing to have the agreement approved.

The Steps

1. Consult with a divorce lawyer to discuss the option of a Lump Sum Order and determine if it is the best option for your situation.
2. Negotiate the terms of the Order with your spouse, including the amount of the payment and any other financial agreements. If you fail to reach an agreement the Court will intervene.
3. Submit the draft agreement to the Court and attend a hearing to have the agreement approved.
4. Once the agreement is approved, the paying party will make the one-time payment to the receiving party.

What Happens if the Lump Sum is Not Paid?

If one party fails to pay the lump sum ordered by the Court, the other party can take legal action to enforce the order. This may involve seeking a Court order for the sale of assets or property to cover the outstanding amount. In some cases, the Court may also impose penalties or sanctions on the party who has failed to pay.

Can a Lump Sum Order be Changed?

In some cases, it may be possible to change the amount of a Lump Sum Order. This may be necessary if there has been a significant change in circumstances, such as a job loss or a change in the financial needs of one party. However, any changes to an Order must be approved by the Court and both parties will have the opportunity to present their case. It’s important to note that changing the details of a previously approved Lump Sum Order is not taken lightly by the Court and there must be exceptional and significant reasons for an Order to be changed.

Seek Legal Advice

A Lump Sum Order can be a beneficial option for couples going through a divorce, as it can provide a clean and final financial agreement. It can also help to avoid ongoing spousal support and protect assets from being divided. However, it is important to carefully consider the financial implications and seek legal assistance before agreeing to a lump sum order. Tyrer Roxburgh family law solicitors can help. With the right guidance and understanding, a Lump Sum Order can provide a fair and equitable solution for asset division in a divorce.

For an overview of all financial orders available please visit Financial Orders in Divorce.

Frequently Asked Questions

What is a lump sum order?

A lump sum order is a financial order made in divorce proceedings that requires one spouse to pay a fixed sum of money to the other. The payment may be ordered as a single payment or, in some cases, by instalments. Lump sum orders are often used as part of a wider divorce financial settlement. They may help one spouse retain a property, compensate the other for their share of assets, or support a clean break so that ongoing financial ties are reduced or ended where appropriate.

Can a lump sum order be varied?

A lump sum order is usually treated as a final capital order and cannot normally be varied once it has been made. However, there may be limited circumstances where the timing or method of payment can be changed, particularly if the lump sum is payable by instalments. In rare cases, a party may be able to challenge or set aside an order, for example where there has been non-disclosure, fraud, mistake or a significant procedural issue. Anyone wanting to change or challenge a lump sum order should take legal advice quickly, as strict time limits may apply.

Can a lump sum order be paid in instalments?

Yes. Although a lump sum order often involves a single one-off payment, the court can order that the sum is paid by instalments where that is more practical for the paying party. Where a lump sum is payable by instalments, the timing and amount of those instalments can, in some circumstances, be varied by the court, even though the overall lump sum itself is usually treated as final.

Are lump sum divorce payments taxable?

Lump sum payments made as part of a divorce financial settlement are generally not subject to Capital Gains Tax, although the position depends on the assets involved and the timing of any transfers. Transfers of property or other assets can have tax consequences in some circumstances, so it is important to take specialist tax and legal advice before finalising a settlement to understand any potential liabilities.

How do you enforce a lump sum order?

If a spouse fails to pay a lump sum order, the other party can apply to the Family Court to enforce the order. Our guide to financial remedy proceedings explains how the court process works. The court has a range of enforcement powers, depending on the circumstances and the assets or income available. Possible enforcement options may include a charging order over property, an attachment of earnings order, a third party debt order, or other enforcement steps. Tyrer Roxburgh can advise on the most appropriate route depending on whether the paying party owns property, receives regular income, has savings, or is deliberately refusing to comply.