Selling a Structured Settlement After Divorce

# Selling a Structured Settlement After Divorce

Divorce can change nearly every aspect of a person's financial life, from household expenses and property ownership to retirement planning and monthly cash flow. For someone receiving structured payments, those changes may also raise questions about how to sell structured settlement payments to obtain a larger amount of money upfront. While a lump sum can provide flexibility during a major financial transition, transferring future payments is a significant decision that should be evaluated carefully.

Key Takeaways

• Divorce can change the financial priorities of someone receiving structured settlement payments.

• Future settlement payments may provide dependable income, but a lump sum can offer greater access to cash.

• Selling future payments generally involves a legal process and may require court approval.

• The amount received in a transaction is typically less than the total value of the future payments being transferred.

• Divorce agreements, property settlements, and court orders can affect how settlement payments are treated.

• Financial and legal advice can help determine whether transferring payments fits into a post-divorce financial plan.

How Divorce Can Change the Financial Picture

Before a divorce, future paments may have been incorporated into a household's overall financial plan. The recipient may have used the income to cover a mortgage, household expenses, education costs, or other shared obligations.

After divorce, those financial circumstances can look very different. A person may suddenly be responsible for a larger share of housing expenses, legal bills, insurance, childcare, or other costs. At the same time, assets that were previously shared may need to be divided.

This can make access to a larger amount of money attractive. However, future payments also represent an ongoing source of income, so giving them up should be considered in the context of the entire divorce settlement.

Structured Settlement Payments and Marital Property

One of the first issues to consider is how the settlement payments are treated during the divorce.

The answer can depend on factors such as when the settlement was established, why the compensation was awarded, applicable state law, and the terms of the divorce agreement. Payments intended to compensate an individual for certain personal injuries, for example, may be treated differently from other assets.

A divorce attorney can help determine how the settlement fits into property division and whether the payments are considered separate property, marital property, or subject to another arrangement.

This question is especially important before entering into a transaction involving future payments. A recipient should understand the divorce-related legal obligations surrounding the settlement before attempting to transfer any portion of it.

Why a Lump Sum May Be Appealing After Divorce

A major financial transition can create immediate expenses. Someone may need to purchase a home, refinance existing debt, pay legal expenses, replace a vehicle, or establish a new household.

Future payments may not provide enough cash at the right time to address those needs. Receiving a lump sum can provide greater flexibility and allow the recipient to address an immediate financial priority. The amount received today will generally be less than the total of the future payments being transferred.

Understanding the Discount

Companies purchasing future structured settlement payments generally calculate an offer based on the present value of those payments. The calculation considers factors such as the amount and timing of future payments, prevailing interest rates, and the purchaser's required return.

Consequently, a recipient should not compare a lump-sum offer directly with the total amount of future payments without considering the time value of money.

For example, receiving $100,000 over several years is financially different from receiving $100,000 today. Money available immediately can potentially be invested or used to address expenses, while future payments remain unavailable until their scheduled payment dates.

Understanding this distinction can make it easier to evaluate an offer realistically.

Divorce Settlements Require Additional Planning

A recipient should also consider how transferring payments could affect the broader divorce agreement.

If the structured settlement is being considered as part of a property division, the parties may need to establish how its value is treated. In some situations, one spouse might retain the settlement while another receives other assets in exchange.

Timing can also matter. Making a major financial decision before the divorce is finalized could have consequences for negotiations or property division.

For that reason, recipients should coordinate with their divorce attorney and other financial professionals before agreeing to transfer future payments.

Alternatives to Giving Up Future Payments

Selling future payments is not the only possible way to address a financial need.

A recipient might consider reducing discretionary expenses, refinancing eligible debt, using other liquid assets, establishing a payment plan with creditors, or restructuring a broader financial plan. Depending on the circumstances, keeping the structured settlement may provide valuable income during the years following a divorce.

The key question is not simply how much money can be obtained today. It is how the decision affects financial stability several years from now.

Evaluating the Decision Carefully

A structured settlement can provide predictable income during a period when financial stability is particularly important. Divorce can change that calculation, but it does not automatically make transferring future payments the best solution.

Before moving forward, a recipient should review the amount of income that will remain after the transaction, the expenses created by the divorce, the value of other assets, and the long-term consequences of giving up future payments.

The goal should be to make a decision based on the complete financial picture rather than an immediate need for cash.

FAQs

Can structured settlement payments be transferred after a divorce?

In many circumstances, future payments may be eligible for transfer, but the transaction must comply with applicable laws and the terms governing the settlement. Court approval may also be required.

Does divorce automatically prevent someone from transferring settlement payments?

No. Divorce itself does not necessarily prevent a recipient from transferring future payments. However, the settlement may be relevant to the divorce agreement or property division, making legal advice important.

Will I receive the full value of my future payments?

Typically, no. A company purchasing future payments generally offers a discounted amount in exchange for providing money upfront.

Should I use settlement payments to pay divorce-related expenses?

It depends on the individual's financial circumstances. Using future income to address immediate expenses can make sense in some situations, but giving up future payments can also reduce long-term financial security.

Do I need court approval?

Depending on the jurisdiction and circumstances, a court may need to review and approve the transfer. The purpose of this process is generally to determine whether the transaction complies with applicable legal requirements and is appropriate for the recipient.

What should I consider before transferring my payments?

Consider your immediate financial needs, remaining income, other assets, debts, tax considerations, the terms of your divorce agreement, and how giving up future payments could affect your long-term financial security.