I am Expecting to Receive some Money from My Divorce Settlement. Is it Better to Get it in a Lump Sum or Over Time?
Here are some pros and cons to consider:
If you don’t trust your spouse to make reliable monthly support payments, a lump-sum payment will remove this issue. However, there are ways to collateralize spousal-support payments and significantly reduce this risk. With a lump-sum payment you have immediate access to the funds, and this gives you the flexibility to purchase a new home instead of renting, or possibly pay off debts with high-interest-rates such as credit cards.
Some of the cons include: you risk spending your money faster than if you received it on a monthly basis over time; and if your former spouse declares bankruptcy after the divorce, his/her creditors may, under certain circumstances, try to recover all or a portion of your lump-sum settlement for their benefit.
Each divorce has its own unique aspects. Your family law attorney and CFP® / CDFA™ can help you evaluate whether you should receive your payment in one lump-sum or over time.