A lump sum order following divorce is a court order that legally requires one party to pay a fixed amount of money to the other as a one-off payment or a series of instalments. Lump sum orders tend to be issued as part of a divorce financial settlement where large assets are involved. For example, a lump sum order may be issued by a court if the ownership of the matrimonial home is transferred to one spouse in exchange for a lump sum payment to the other spouse.
A periodical payment order is another type of divorce financial settlement order issued by the courts, which requires one party to pay the other party an ongoing amount of money, usually a monthly amount. Periodical payment orders, also known as spousal maintenance orders or child maintenance orders, are issued when one spouse is in a financially weaker position than the other or to help cover the living expenses of any children from the marriage.
Lump sum orders and periodical payment orders are both types of financial orders that can be issued by the courts together or with other orders to achieve a fair divorce settlement, such as a clean break order, pension sharing order, or property adjustment order.
Before you can apply for a lump sum or periodical payment order as part of a divorce financial settlement, you must try to reach an agreement with your ex-husband or wife through mediation. If you cannot reach an agreement through mediation or if it is not appropriate in your circumstances, you will need to apply to the court, which can make a decision for you. We recommend engaging a divorce lawyer to prepare and handle your lump sum or periodical payment application. They will complete and submit a financial order application form to the HMCTS Financial Remedy service. There will then be a series of hearings to decide your matter. If necessary, the matter will culminate in a final hearing where the judge will decide on whether a lump sum or periodical payment order should be issued.
What are the advantages and disadvantages of lump sum order?
Advantages of a lump sum order
- Not taxable for the recipient – Lump sum payments are not subject to income tax, meaning the recipient can fully benefit from the full amount paid.
- Financial certainty – Provides the recipient with a fixed, guaranteed amount, avoiding any dependency on future payments.
- Flexibility – The recipient has the freedom to manage the funds as they choose, such as investing or using the money for large expenses.
- Closure – Offers a sense of finality (i.e. a clean break) and closure for both parties, avoiding the need for ongoing financial ties or adjustments.
Disadvantages of a lump sum order
- Tax implications for the paying spouse – The spouse raising the funds may receive a tax bill (e.g. for capital gains tax if they need to sell assets or investments to fund the payment).
- Cash flow pressure – The paying spouse may experience financial strain in raising a large sum all at once, potentially impacting their long-term financial stability.
- Potential need for asset liquidation – The paying spouse may need to sell some of their assets, such as property or investments, which could impact their financial portfolio.
- Risk for the recipient – The recipient must manage the funds wisely, as there are no further payments or adjustments, which could be a disadvantage if their financial circumstances change.
Before proceeding with a lump sum order application following your divorce, please speak to our family law team who can assess the details of your case and determine if a lump sum order is suitable for you or if there is a better option.
Advantages and disadvantages of periodical payments orders
Advantages of a periodical payments order
- Ongoing financial support – periodical payments ensure that the recipient receives a regular and reliable income over time, reducing the risk of running out of funds.
- Adjustable – Can be varied if the financial circumstances of either party change significantly, providing flexibility. If the recipient’s financial needs increase (e.g., due to illness or other circumstances), there is the potential to adjust the payments accordingly.
- Tax-efficient for the paying spouse – Payments can be made from taxed income, potentially reducing the paying spouse’s overall tax burden (e.g. compared to paying capital gains tax when selling a large asset).
Disadvantages of a periodical payments order
- Does not allow for a financial ‘clean break’ – Maintains a financial connection between the parties, which may not be desirable for either side, potentially leading to future disputes.
- Uncertainty for both parties – Periodical payments lack the certainty of a fixed sum payment. If circumstances change, such as job loss or illness, the payments may be varied, creating financial uncertainty.
- Long-term financial commitment for the paying spouse – The paying spouse may have to make payments for many years, which could impact their ability to plan or manage long-term finances.
How is the amount of a lump sum order or periodical payments order determined?
When deciding the value of a lump sum or periodical payment order, the court will take into account a range of factors, including:
- Age of both parties
- Earning ability of both parties
- Marital assets, including property and money
- Living expenses
- Lifestyle and standard of living of both parties
- Financial needs and responsibilities of both parties
- If one person was the primary earner while the order was the primary carer for the family
- Any disability or health condition
When it comes to periodical payments to cover the cost of child care, the courts will typically take into account the age of the child and their future needs. A clean break/lump sum order is more likely to be issued where there are no dependant children from the marriage or civil partnership.
Enforcement of a lump sum order or periodical payments order
If one party fails to meet their obligations to pay a lump sum or periodical payments, the other party can apply to the court to enforce the order.
If a lump sum payment is not made, the receiving party can apply to the court for enforcement action to be taken. They may ask, for example, for a charging order to place a charge on the other party’s property or other assets. This means the debt must be repaid when the asset is sold.
On the other hand, if spousal periodical payments are not made, the receiving party can apply for an attachment of earnings order. This allows payments to be deducted directly from the defaulting party’s salary by their employer, ensuring that regular payments are made. If an ex-spouse fails to make child maintenance payments, there are a number of enforcement actions that can be taken, including an attachment of earnings order, a third-party debt order, a charging order, or a judgment summons.
