Important Considerations for Alimony Buyouts

Many times, parties will be interested in exploring a “buyout” of alimony.  A buyout is generally a one-time lump sum payment that would take the place of a traditional monthly alimony obligation.  Many cases settle based upon a buyout approach, but it is important that this buyout be calculated correctly.

Importantly, anyone considering a buyout must examine how their alimony would normally be taxed and decide how this will impact the buyout amount.  

If paid monthly, alimony (depending on the parties’ agreement) will usually terminate upon the remarriage of the spouse receiving support. In most cases, alimony can also be reduced or terminated if the spouse paying support loses their job or experiences other significant loss in income; on the other hand, alimony might increase if the spouse paying support experiences an increase in income (of if the receiving spouse experiences a decrease in income).  Generally, alimony also terminates upon the receiving spouse’s death.  Due to these and other factors, parties  should carefully consider if an alimony buyout is beneficial, and if so, the appropriate amount of the buyout. 

A lump sum buyout immediately allows the receiving party to invest the funds and grow the money over time.  Because of this, a lump sum is more valuable than if the same amount was received slowly over many years.  However, for this reason, any alimony buyout generally factors in the “present value” of the funds received. 

An alimony buyout can still be extremely advantageous to both parties.  The receiving spouse has more flexibility with the large lump sum than with monthly payments of alimony.  The payor spouse generally pays less in a lump sum than would be paid monthly over the life of the alimony term.  The receiving spouse also is free to remarry without concern of losing their monthly support. The payor spouse can earn additional income without worrying that the receiving spouse will seek an increase in support. The receiving party also obtains significantly more financial independence and no longer has to worry that their former spouse may suffer a loss of employment and may return to court to reduce alimony payments. They payor spouse is relieved of any future support obligation to pay support and does not need to worry that the receiving spouse will seek more support in the future.

For all these reasons, anyone considering a buyout of alimony should speak to an attorney to ensure it is beneficial and if so, appropriately calculated.