Fox Family Lawyers
Cynthia Moseley Fox
Attorney at Law
7751 Carondelet Avenue,
Suite 700
Clayton, Missouri 63105
(St. Louis)
314.727.4880

Lump Sum Alimony Payments Aren’t Always Best For The Payer or the Receiver

A colleague told me this story and it illustrates why “a bird in hand….” isn’t always best for someone exiting a marriage with few skills except as a mother and homemaker.

 

After ten years of marriage, this couple filed for divorce as the wife had fallen for another man. She wanted to settle quickly so to get on with her new love. Her husband offered a $100,000 (the “bird in hand”) in lieu of on-going maintenance plus $4,000 in monthly child support for their four children. Without hesitating, she accepted.

 

Seemingly, this was a good deal for both. She had a nest egg and was free to focus on her beau. The husband avoided the possibility that a judge might have ordered open-ended maintenance payments for an indeterminate period plus child support, possibly higher than the monthly $4,000 agreed to, and subject to future increases as his income grew.

 

And all did go well until the boyfriend flew the coop, after helping the wife blow the $100,000 on joint vacations and other frivolous purchases. Now the former wife and girlfriend is alone, unemployed, and living with her children in a small apartment on the child support payments.

 

Her ex-husband is no longer happy either. He suspects the wife is using a significant portion of the child support money to fund her search for a new mate while his/their children subsist on the remains. He doesn’t like his options for rectifying the situation either.

 

He can go back to court and obtain physical custody of his children. This would mean giving up his highly paid job to care for his kids or hiring a full-time nanny. His child support costs would certainly be less, but the savings would be exceeded by his reduced income or nanny costs. He could also have the court force his wife to account for how the child support funds are being spent, but the statute that enables the audit doesn’t impose any consequences when the monies are misappropriated. Or, he could do nothing and hope for the best.

 

Unfortunately, the couple’s best option is now behind them, when the divorce decree was prepared. Had I been at the scene, I would have advised the husband to spend his $100,000 another way. The decree could have directed the husband to support the wife entirely while she prepared for a serious post-marital career. For the same $100,000, but paid out as monthly maintenance, augmented by an educational loan, the wife could have earned a bachelor’s degree at UMSL or some other public university. Importantly, the divorce agreement would have required that the wife spend the money only for her education and daily living necessities.

 

In addition, the decree would direct the husband to support his “ex’ after graduation as she established her new career. For example, a 5-year period of declining monthly payments averaging $13,000 annually would have set the husband back another $65,000.

 

You may be asking why the husband would agree to spend $165,000 when his wife would accept a mere $100,000. The reasons are simple: The entire $165K in on-going maintenance would be tax-deductible, while the $100K lump sum was not. Assuming a combined federal/state 40% tax bracket, his aftax costs would be the same as the $100K he agreed to. Plus, the $165,000 would be spread out over nine years. And, presumably, his kids’ quality of life would be better once his wife was gainfully employed.

 

Would the wife have accepted? Who knows? A fully paid “scholarship” plus a post-graduate “fellowship” would seem very enticing. To turn an old phrase, she would be taught how to fish rather than being given just a sandwich. But, as it is with most us, when compelled by love or lust, we have often make poor and shortsighted choices.