Lump-Sum Spousal Support – Common Pitfalls

Spousal support is meant to help the receiving spouse get back on their feet, and compensate them for their unpaid labour during the relationship (e.g. for being a stay at home mom/dad while the other spouse pursued a career). It is typically paid on a monthly basis for several years or more.

There is another way to approach spousal support. Rather than pay monthly, the paying spouse can make a single payment equal to all the monthly payments combined.  This is called lump-sum spousal support. For some, this has obvious appeal.  It allows for a clean break between the spouses (no more e-transfers every month) and provides a degree of certainty and finality. 

However, calculating lump-sum spousal support can be difficult. The spouses must first determine how much would be paid month to month, and for how long, requiring complex legal analysis. With that done, there are still two major pitfalls to look out for: tax consequences and the opportunity for investment.