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.
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.
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.
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.
While a Lump Sum Order can be a beneficial option for asset division in a divorce, there are some considerations to keep in mind.
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.
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.
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 and attending a hearing to have the agreement approved.
- 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.
- 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.
- Submit the draft agreement to the Court and attend a hearing to have the agreement approved.
- 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.