Wed. Jun 7th, 2023

structured settlement in a divorce

Is a Structured Settlement Beneficial in a Divorce?

A structured settlement replaces one lump sum payment with smaller payouts over time. It’s frequently used in workers’ compensation and tort cases, but it can also be beneficial in a divorce.

Structured settlements are a complex asset that should be handled carefully by a divorce lawyer or mediator with experience handling complex assets. They can be tax-efficient, reliable and flexible options for dividing assets during a divorce.


If you are considering a structured settlement as part of your divorce, it is important to understand how it will affect your tax liability. There are many ways to ensure that you do not pay taxes on the money that you receive in a structured settlement, but it is always best to consult with a financial advisor.

The first thing to consider is whether or not you will have a significant income increase after your divorce. It is also important to consider how your alimony payments will be taxed and whether or not your retirement account (IRA) will be impacted by the divorce.

Another aspect of a divorce that can affect a person’s tax liability is the sale or transfer of real estate. This may impact the amount of mortgage interest and property tax that you are able to deduct on your individual return.

Depending on your situation, it may be a good idea to negotiate with your spouse to split these expenses equally. This will help both of you to save on taxes and make your overall finances much more stable after the divorce.

Structured settlements have been used in divorces for years to help ensure that all parties involved are fairly rewarded and that the property is distributed evenly between the two parties. This type of arrangement is particularly appealing to people who have less liquid assets, such as real estate or businesses.

In general, qualified structured settlements are income tax free subject to certain exclusions in the Internal Revenue Code. For instance, payments that are received on account of personal physical injury or sickness are generally not taxable. However, it is a good idea to consult with a personal tax attorney or certified public accountant to determine what the potential tax consequences are for the specific type of structured settlement you are negotiating.

A divorce can be a complex process, and tax issues are often difficult to resolve. It is therefore a good idea to discuss your options with a qualified divorce attorney or financial advisor as soon as possible.

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Structured settlements can be a great tool to help resolve a divorce case. However, it is important to understand what they are and how they work in order to know whether or not they are the right solution for you.

A structured settlement is a special type of alimony, child support or equitable distribution payment that replaces one lump sum with periodic payments over time. This option can help resolve financial concerns between the divorcing parties and reduce acrimony.

These types of payments can be designed to match your current income, or they can be set up for larger payouts in the future such as college tuition. They also give you the flexibility to tailor your payouts for your personal needs, such as medical expenses or retirement.

Another benefit of these payments is that they generally cost insurance companies less than a lump sum. They may even be tax-free, and can be difficult for creditors and ex-spouses to access.

The biggest drawback of these types of payments is that they can be used for unwise purposes by some people. Some people have sold their structured settlements for cash, or have used the money to pay off other debts. Others have taken out large loans to purchase cars, furniture and other expensive items.

This is why it is critical to choose a structured settlement that has a high track record of reliability. This will help protect the recipient spouse from getting stuck with a payout that isn’t in line with their present needs.

A few states, such as New York and Florida, have laws that require insurers to disclose the costs of a structured settlement. These disclosures will allow a client to evaluate a structured settlement’s cost and benefits before they sign on the dotted line.

As with all divorce cases, the best way to determine whether or not structured settlements are a good solution for your client is to speak with a qualified attorney. They will be able to answer your questions and explain the pros and cons of this financial instrument.


When you divorce, your property is not just your physical assets such as houses, cars and bank accounts – it also includes things like pensions, investments, savings, retirement benefits and all the other financial aspects of your life.

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The laws governing the division of property and asset distribution vary from state to state. Most states use the process of equitable distribution. This means that your marital assets are divided in a way that is fair to both of you. In some states, such as California, Texas, Nevada and Idaho, a judge will use the community property system.

In these cases, the value of your property is generally split fifty-fifty, even if you own less than half of your total asset base. This doesn’t mean that each spouse gets half of the property – it simply means that they will get a portion of it and you’ll have to negotiate for the rest.

If your spouse is a non-income earning spouse, the money he or she receives from the structured settlement can be used to cover living expenses and other necessities. This can help alleviate stress on a spouse, especially one who is dealing with a disability or has other health issues.

A structured settlement can be a very useful tool to help ease the burden of financial responsibilities during a divorce. It can be used to help fund alimony, child support or other important needs.

This is because structured settlements allow you to divide your payments over time in a way that suits your lifestyle and needs. Payment streams can be made on a monthly, quarterly or bi-annual basis, depending on your specific needs and circumstances.

While a structured settlement can help to smooth out the financial side of a divorce, it is not without its own tax implications. As such, it’s important to consult with a tax expert as soon as possible if you think this may be something that can benefit you.

When it comes to structuring a divorce, it’s best to take the time to find out what can be done to ensure that you receive as much of your financial resources as possible. This will not only help you to avoid future complications, it can also ensure that you receive a fair share of your wealth during the entire process.

No Contact

The ability to maintain no contact with your ex after a divorce can make it much easier to move on. It can also be less stressful for your children as they won’t have to deal with a parent’s anger and resentment.

In a divorce, the court typically uses a process called equitable distribution to divide the couple’s assets. This doesn’t mean that everything is divided 50-50, but it does mean that negotiations start with the attempt of dividing assets in a way that is fair to both parties.

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This can mean that one spouse may receive a lump sum of money, while the other will get a set amount over time. This can be a good option for people who have been awarded large amounts of money, but it can also be bad for someone who doesn’t have a lot of extra cash to put away for the future.

When a person is awarded a structured settlement, they are typically given a contract with a company that will make periodic payments. These payments are usually tailored to suit the individual’s specific needs and are designed to increase over time.

These payments can be made in a lump sum or in lifetime payments and are often used to pay for long-term needs like child care, college tuition and retirement funds. They can also be used for ongoing expenses, such as medical costs and living expenses.

The structure of a structured settlement is typically determined during the divorce and can include lump sums and recurring payments. The person receiving the structured settlement will need to sign a document agreeing to these terms.

If you’re involved in a divorce and have been awarded a structured settlement, it’s important to understand how the IRS treats this type of payment. It can have a significant impact on your tax liability.

Ultimately, the best way to understand how a structured settlement will affect your tax liability is to talk to an experienced divorce attorney. They will be able to help you figure out the best options for your situation and can ensure that you don’t miss out on any opportunities to avoid paying taxes on your settlement.

Jeffrey Augers
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By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.