What is a Lump Sum Order?

Claire Andrews

A lump sum order is a crucial element of divorce settlements that can significantly impact the financial future of both parties. In this article, we’ll unpack the concept of lump sum orders, exploring their role in divorce proceedings, their potential benefits, and the implications they carry. Whether you’re in the midst of a divorce or simply seeking to understand the process, our guide will provide valuable insights into this important aspect of marital financial separation. Read on to discover how lump sum orders work and what they could mean for your divorce settlement.

Lump Sum Orders in Divorce

When a relationship breaks down, as well as legally ending the marriage through a no-fault divorce, there are financial matters that must be resolved. The couple must decide on a fair division of property and assets accumulated during the marriage, and make decisions around spousal maintenance and child support.

The Court has various tools at its disposal to help resolve these financial matters, and as a result has the power to make various orders, one of which is a Lump Sum Order.

A Lump Sum Order is exactly what it sounds like – an order for one person to pay the other a (often) large lump sum of money. The money is usually payable all at once and can be for the benefit of the payer’s former spouse or their children.

Why is a Lump Sum Order issued?

A common use for a lump sum is to balance out other assets being divided in the divorce settlement or a Schedule One claim. For example, if one person is taking a larger share of the savings, investments or pension, a lump sum may be ordered to make up for this difference.

Another common use for lump sum orders is when one of the parties is to remain living in the family home (often the mother and children) while the other is moving out. In this example, ownership would be transferred into the name of the person remaining in the property in exchange for a lump-sum payment to the other spouse. The lump sum would compensate the departing spouse for their share of the home’s value.

How does a Lump Sum Order work?

Lump Sum Orders are found in a clause in a Consent Order.

The Consent Order is an agreement reached between the parties with the help of their respective legal teams and then approved by the Court. It deals with any elements of an agreement including any Lump Sum Order and involves the separation of all the couple’s money, pensions and assets.

If an agreement cannot be reached, the Court will step in and decide the details of the overall agreement including any suitable Lump Sum Order.

Once the Order is made or approved by the Court, it becomes legally binding. The paying party will need to make the payment by the specified date. This may be when the Final Order is granted or the payment may be divided into instalments or deferred until a fixed date in the future.

How is the amount of a Lump Sum Order determined?

The Court will look at all the circumstances of the case, as well as a variety of factors to ensure the Order is as fair as possible. The Matrimonial Causes Act 1973 lists some of the factors that a Court should take into consideration. The welfare of children is the biggest priority, but the Court will also look at:

• The length of the marriage
• The couple’s standard of living during the marriage
• The income, financial resources and earning potential of each spouse
• The financial needs of each party (eg housing costs and daily living expenses)
• Contributions made by each party to the marriage, including both financial and non-financial contributions (for example, where the wife put her career on hold to look after children)
• Other assets or property being divided between the parties

The Court will also consider any prenuptial agreement or postnuptial agreement that was made between the parties.

What are the benefits of a Lump Sum Order?

• Finality

The major benefit of a Lump Sum Order is that it offers a conclusive resolution to financial matters stemming from the divorce. Once the payment is made, (depending on the rest of the Consent Order) there are no ongoing obligations and both parties can go about their lives without any financial ties to each other.

• Avoids ongoing maintenance

Sometimes, a Lump Sum Order is used instead of monthly periodic payments, such as spousal maintenance payments, this is known as ‘capitalisation’.. This can be a more desirable option for both parties, as it avoids the need to reassess and potentially change the amount of maintenance being paid.

• Provides financial security

For the party receiving the lump sum, this type of order can provide assurance: once the money is yours, it is completely yours. Your money will not be cut because your ex suffers a downturn in fortunes, as might happen with spousal maintenance payments, and it won’t be impacted if you remarry, unlike spousal maintenance payments.

• Protects assets

A Lump Sum Order can be used to safeguard assets that you do not want to be shared with your former spouse. For instance, if one party wants to keep a family business or a valuable asset, they may prefer to opt to make a larger lump sum payment in exchange.

What are the potential drawbacks of a Lump Sum Order?

Although a Lump Sum Order may offer advantages for dividing assets during a divorce, it is not suitable for all situations.

First, the parties need to think about their own financial situation. Can the paying party afford the lump sum without causing financial hardship? Can the receiving party manage the full amount, for example, by investing it or saving some of the money? Where the receiving spouse struggles with financial planning, receiving a lump sum payment may not be in their best interest.

Additionally, there may be tax implications of receiving a lump sum, and it could impact your ability to receive means-tested benefits.

An experienced divorce solicitor can explain the potential drawbacks and ensure that a Lump Sum Order is the right financial decision for both parties involved.

Lump Sum Payment: Instalments or a Series of Payments?

Often a lump sum can be payable over months or years, as opposed to in one go. When this type of arrangement has been agreed upon, there are two Lump Sum Order options to consider when drafting the Consent Order: a lump sum payment by instalments or a series of lump sum payments. If a lump sum is payable by instalments this means that the court has the power to vary the order if there are any issues later down the line. There is no similar power for a series of lump sums, so arguably a series of lump sums provides more certainty.

Recent case law has highlighted the importance of making the intentions behind the agreement clear in a Consent Order. In any event, your solicitor will go through these with you and explore which lump sum payment structure is most suitable in your case.

Are there any alternatives to a Lump Sum Order?

Yes, there are other options for resolving financial matters in a divorce settlement. These may include:

• Property Adjustment Orders, which transfer ownership of property or assets;
• Pension Sharing Orders, which divide retirement savings between the parties;
• Periodical Payment Orders, which require ongoing payments for a period of time. The two types of Periodical Payment Orders are Spousal Periodical Payments and Child Periodical Payments, and they’re usually paid monthly to the financially weaker spouse.

The best combination of Orders will depend on the specific circumstances and needs of each party involved. It’s important to discuss all available options with your legal team and consider what will work best for your individual situation.

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An expert divorce solicitor can help you understand your options. Our team is on hand to help you find the best route forward.

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