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What is a Lump Sum Order in Divorce?

Our People - Loretta Orsi-Barzanti
6 July, 2024

Even in a no-fault divorce, dividing finances and assets during a separation can be a daunting task, filled with legal difficulties and emotional considerations. One option that can help achieve a more streamlined financial settlement is a lump sum order. But what exactly is a lump sum order, and how can it benefit divorcing couples?

What is a Lump Sum Order?

A lump sum order is a court-ordered one-time payment made by one spouse to the other. Unlike spousal support, which involves ongoing payments, a lump sum order is a fixed amount of money paid upfront. More formally, it’s a type of financial order issued by the court in family law cases, particularly in divorce or separation proceedings. It requires one party to make a one-time payment to the other party as a settlement of their financial claims. The lump sum can be paid in a single payment or in instalments as specified by the court.

Key Points about Lump Sum Orders

Here are 5 key points to understand about lump sum orders:

  • The primary purpose is to achieve a fair and final financial settlement, addressing financial needs and contributions.
  • Courts consider various factors like financial resources, earning capacities, and the welfare of children.
  • The lump sum can be paid as a one-time payment or in instalments. The court may consider tax implications.
  • The purpose of the payment can provide financial support, capital division (e.g., property), or equalisation of resources.
  • A lump sum order must be approved by the court to be legally binding.

What are the pros and cons of Lump Sum Orders?

There are a number of benefits to consider with lump sum orders. For one, they provide a sense of finality and certainty. The receiving spouse knows exactly how much money they’ll get, and the paying spouse is no longer obligated to make future payments. Additionally, the receiving spouse gains control over how to use the lump sum, allowing them to invest it, pay off debt, or use it for other purposes.

However, there are also some considerations to keep in mind. Raising the lump sum might require the paying spouse to sell assets, potentially leading to capital gains taxes. Furthermore, both parties should carefully consider their future financial needs, such as retirement planning, before opting for a lump sum over ongoing spousal support.

How do you obtain a Lump Sum Order in Divorce?

Obtaining a lump sum order in a divorce typically involves a few key steps:

  1. Negotiation: The first option is to try to reach an agreement with your spouse on the use of a lump sum order. This can be done through open communication and potentially mediation, where a neutral third party facilitates the discussion. If you can agree on the amount and terms of the lump sum, you can draft a settlement agreement with the help of a lawyer.
  2. Court Order: If you cannot reach an agreement with your spouse on your own, you will need to go to court. Your lawyer will present your case to the judge, arguing why a lump sum order is appropriate and what amount would be fair. The judge will consider various factors (mentioned earlier in the article) before issuing a court order for a lump sum payment.

Consulting with a family law solicitor throughout the process is crucial. They can advise you on your rights, negotiate on your behalf, and ensure the lump sum order protects your financial interests. Both parties will likely be required to submit detailed financial disclosures to the court, including income, assets, and debts. This information is essential for the judge to determine a fair lump sum amount.

In general, receiving a lump sum divorce settlement is not considered taxable income for the recipient spouse. However, there may be tax implications associated with a lump sum order, depending on how the payment is made and used. Your family lawyer can advise you on potential tax consequences.

It’s also important to note that receiving a lump sum may affect your entitlement to benefits depending on the amount of the lump sum as it could take you over the capital threshold that the benefits agency implements.

When are Lump Sum Orders commonly used?

Lump sum orders are commonly used in several situations. Perhaps one spouse wants to keep the marital home. The spouse keeping the house can use a lump sum payment to essentially “buy out” the other spouse’s ownership stake. Lump sums can also be used to balance out an unequal division of other assets, such as retirement accounts. Additionally, some couples might prefer a “clean break” settlement, where a lump sum replaces ongoing spousal support, providing finality and eliminating the uncertainty of future payments.

Sarah and Michael’s Divorce

Sarah and Michael were married for 15 years and decided to amicably divorce. They had a significant age difference, with Sarah being 10 years older than Michael. During the marriage, Sarah, a successful lawyer, was the primary breadwinner. Michael stayed home to raise their two children, now teenagers.

The couple agreed to share custody of the children, with Sarah covering a higher percentage of their ongoing expenses due to her higher income. However, the biggest hurdle in their settlement was the marital home.

The house had significant sentimental value for both Sarah and the children. Michael, wanting the children to maintain some stability, also wanted them to stay in the house. However, Sarah couldn’t afford the mortgage on her own and wasn’t interested in keeping the house long-term.

To achieve a clean break and avoid the complexities of co-ownership, they explored a lump sum order. Sarah agreed to transfer the house to Michael in exchange for a lump sum payment that reflected her equity in the property. This allowed Michael to keep the house for the children while Sarah received a significant one-time payment to invest for her future.

This scenario highlights how a lump sum order can be a creative solution in divorce settlements. It addresses asset division (the house), provides some financial security for the receiving spouse (Sarah), and allows for a clean break from the financial ties of the marriage.

What happens if the Lump Sum is not paid?

If a court-ordered lump sum payment isn’t received, the receiving spouse has options to enforce the order and recover the money. They can apply to the court for an order forcing the sale of assets owned by the paying spouse, with the proceeds used to settle the debt. 

Alternatively, a charging order can be placed on the paying spouse’s property, giving the receiving spouse a claim against it if it’s eventually sold. In some cases, the court might grant an attachment of earnings order, directing the paying spouse’s employer to withhold a specific amount from their wages until the lump sum is paid in full. As a last resort, bankruptcy proceedings against the paying spouse could be considered, though this is a complex step best discussed with an experienced divorce lawyer.

Contact a Specialist Financial Divorce Lawyer

When considering a lump sum order in your divorce settlement, it’s crucial to seek legal advice from a qualified divorce solicitor specialising in financial agreements. Our expert Family Law Solicitors can guide you through the process of negotiating and securing a fair lump sum order, ensuring your financial interests are protected throughout the process. Please feel free to contact our specialist Divorce Solicitors or call us on 020 8492 2290.

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