The economy has been sluggish for years. We’re recovering from the worst global recession since the Great Depression, and virtually every family I know has been affected in some way. Many people have lost their jobs. Even more have seen their stock portfolios shrink and the value of their homes plummet.
Although it may come as a revelation to some women, a down economy can even affect alimony payments.
Surprised? Let me explain. But, in order to do so, let’s first review some basic information about alimony.
Alimony (also called spousal support or maintenance) is the term that describes the payments made from one spouse (the “moneyed” spouse) to the other (the “non-moneyed” spouse) after the divorce is finalized. The essential purpose of alimony is to provide economic support to the dependent spouse and to allow the “financially disadvantaged” spouse to continue a comparable standard of living that he/she enjoyed during the marriage.
A variety of alimony options exist, but for the purposes of this article, I’m just going to discuss the following two:
- Regular Alimony (or Periodic Alimony)
- Upfront lump sum payment in lieu of alimony
Regular alimony is paid in established intervals (typically monthly) and usually continues per the divorce settlement agreement until: 1) the spouse who’s receiving it remarries (or, in some cases, cohabitates); 2) either party dies (keep reading to find more details about this); 3) either party goes to court to seek a modification based on a substantial change in financial circumstances.
Factor #3 is the key here: Regular alimony payments can be modified (up or down).
Of course, any modifications to alimony, child support and/or other divorce-related payments must be approved by the court. However, if the judge agrees that the ex-husband can no longer afford to pay the current amount of alimony, that judge can decide to reduce those required payments.
What can you do to protect yourself from this kind of financial uncertainty?
As is so often the case with divorce, the best defense is a good offense. In other words, it’s best to build a qualified divorce team from the start to help you analyze and consider all the options available to you before you agree to any divorce settlement.
As my firm exclusively represents women, if our client is to be the recipient of alimony, it is our belief that an upfront lump sum payment in lieu of alimony is the preferred option in most cases. With an upfront lump sum, a divorced woman’s financial portfolio is completely independent of changes in her ex-husband’s financial portfolio. But before making a recommendation like this, we must be certain that:
- There are sufficient assets available to make such a lump sum payment.
- The recipient is not a spendthrift.
- The recipient has no lawsuits pending against her.
- The recipient has good continuing financial advice about asset protection and how to make the lump sum payment, along with the rest of her settlement, last as long as possible.
An upfront lump sum payment in lieu of alimony is a one-time payment of a fixed amount unaffected by any future changes in the ex-husband’s financial status. In other words, any ex-wife who agreed to a lump sum payment would not be particularly worried about the effects of economic uncertainty on her ex-husband’s income. She already received everything she was entitled to and her ex-husband cannot come back to request any modifications.
At Bedrock Divorce Advisors™, we’ve seen how devastating it can be for a woman to lose her alimony income, but an upfront lump sum payment can prevent that kind of financial trauma from happening to you. Of course, because the entire alimony payment is made all at one time, an upfront lump sum payment requires careful, deliberate financial management. As mentioned above, you will have to handle the one-time payment appropriately so that it sustains your lifestyle long-term.
Even if you do choose to accept periodic alimony payments, there are ways to help protect yourself. For example, any woman who plans to accept periodic alimony payments should establish a life insurance policy to secure alimony payments and enable her to receive a tax-free, lump-sum payment of what she would have received over time from her alimony, child support and/or other divorce-related payments should her ex-husband die.
If you choose to take this route, it’s best to establish this life insurance policy before the divorce has been finalized. After the divorce, your ex-husband may refuse to cooperate in getting the required medical exam, or you may discover during the process that he is uninsurable. Either way, you need to know this before the divorce is settled so that, if necessary, you can find alternate ways of securing your divorce settlement payments.
Don’t let a change in your ex-husband’s financial status impact your financial well-being after your divorce. Before you agree to any divorce settlement, please make sure you thoroughly consider all the alimony options available to you. You may find that an upfront lump sum alimony payment is your best financial option, and that it gives you peace of mind, knowing that his financial problems are no longer your financial problems.
Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com) a firm which exclusively advises affluent women throughout the United States before, during and after divorce. He assists women and their divorce attorneys with deciding on the most advantageous way to divide marital assets and enable them to negotiate more favorable settlements, especially when there are complicated financial and tax issues. Jeff also advises happily married women who have seen their friends blindsided by a divorce initiated by their husbands and wonder (wisely) how financially vulnerable they’d be in that situation. Jeff developed the nation’s first Just in Case(TM): Secure Your Financial Future,a one-hour program, which quickly shows married women how to be prepared in the event of a future divorce with immediate, practical steps. He can be reached at Landers@BedrockDivorce.com. All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney. Follow Jeffrey A. Landers on Twitter: http://www.twitter.com/Bedrock_Divorce