Lump Sum Spousal Maintenance

In Australia, spousal maintenance refers to financial support that one spouse provides to the other spouse after a separation or divorce. The term “maintenance” carries connotations of regular instalments over a length of time, and certainly most spousal support is provided via periodic payments However, the Federal Circuit and Family Court of Australia (the court) or Family Court of Western Australia may order that spousal maintenance be paid in a lump sum. Lump sum spousal support is particularly beneficial in cases where ongoing payments are impractical or there is a need to finalise financial matters without delay. This article looks at the difference between lump sum and standard spousal maintenance, the legal framework around spousal support and the factors that influence the court’s decisions.

When is spousal maintenance ordered? The court is authorised by the Family Law Act 1975 to make orders for spousal support when it finds that:

1. the applicant cannot adequately support themselves because of their age, health, caring responsibilities, or lack of income and resources; and

2. the respondent has the financial resources to provide their former spouse with the support.

In some cases, a lump sum spousal maintenance order will be issued as part of the former couple’s property settlement. For example, the Court may order that a property or share portfolio that would otherwise be allocated to the paying spouse be transferred to the recipient spouse as a lump sum spousal maintenance payout.

What is lump sum spousal maintenance?

Traditional spousal support takes the form of periodic payments that are paid weekly, fortnightly or monthly. This support usually continues for as long as the court considers necessary for the recipient spouse to achieve financial independence. For instance, the court may order spousal maintenance until the spouse completes a training course that enables them to re-enter the workforce.

Lump sum spousal maintenance, on the other hand, is a one-off payment made by one spouse to the other in place of regular payments over time. As a single upfront payment, the lump sum is designed to meet the same financial needs as ongoing maintenance.

In determining whether to order lump sum spousal maintenance, the court will look at factors such as the financial resources of both parties, their incomes, assets, liabilities, respective needs and the practicality of making regular instalments. A lump sum is most often ordered in cases where there are concerns about the reliability of ongoing payments or when the respondent has the means to discharge their maintenance obligations upfront.

Advantages of spousal maintenance

Lump sum spousal maintenance provides a desirable finality for both parties, as their financial ties are completely severed. When the maintenance is paid in a lump sum, the recipient has no need to fear that their payments will be disrupted by changes to the payer’s financial circumstances, or willingness to fulfil the terms of the order. This can be particularly beneficial in cases of high conflict between the parties, or when there is a history of family violence. It avoids the possibility that one spouse will use spousal maintenance as a mechanism to continue controlling the recipient spouse. It is preferable to seek a lump sum payment if an ongoing financial connection to a spouse causes the recipient undue anxiety, stress or mental health issues.

Even in amicable separations, there are still advantages to lump sum maintenance. For instance, periodic spousal maintenance orders can be difficult to enforce if the paying spouse has financial challenges, a change of employment, or leaves the country. A lump sum payment avoids the need for costly and time-consuming enforcement actions and ensures that the dependent spouse is not left in financial distress with little notice.

In addition, a lump sum payment allows the recipient greater flexibility and control over their own finances. The court may order a lump sum if the recipient’s basic needs are better addressed through a lump sum. For instance, a lump sum may allow the spouse to purchase a new home, providing for their immediate accommodation needs. It could also help them make major transitions such as relocating to new areas.

Drawbacks of lump sum maintenance

While there are clear advantages to lump sum spousal maintenance, there are also potential drawbacks. Certainly, there is a risk that the recipient will mismanage the funds, especially if they have little experience with handling large sums of money. In that case, the recipient spouse may be left in a worse financial position if they deplete the funds too quickly.

Unlike periodic payments, which the court may adjust if circumstances change, the court is unlikely to revisit a lump sum spousal maintenance. This can present a problem if the recipient loses their jobs or becomes seriously ill.

Calculating a lump sum payment is likely to be more challenging than determining periodic maintenance as it requires the court to estimate the recipient’s financial needs for the foreseeable future. To calculate a lump sum, the court needs to arrive at a fair sum that reflects the recipient’s financial needs but is also reasonable for the paying spouse. The court often calculates the sum based on the equivalent periodic maintenance over a set period of time, with a discount to account for the potential benefits of a lump sum payments.

For the paying spouse, a lump sum payment can be a significant financial burden, especially if it means liquidating assets or taking on debt to discharge their obligation. Even in cases when the recipient would strongly prefer a lump sum, the court will be reluctant to order maintenance in this form if the paying spouse raises significant objections. The court will always take into account whether the lump sum payment is reasonable in light of the payer’s financial situation.

It is essential to take both legal and financial advice before making decisions about spousal maintenance to ensure that the arrangement is fair, advisable and aligned with long-term financial interests. Contact Go To Court today on 1300 636 846 for advice on lump sum spousal maintenance or any other family law matter.