If you receive a payout from a legal settlement, will it impact the amount of alimony you owe or receive? The short answer: yes, it can. Continue reading for more information about legal settlements, alimony in Oklahoma, and what to do if a settlement impacts your case.
Legal Settlements and Alimony Payments: An In-Depth Look
Legal settlements and alimony payments are complex issues that intersect in many divorce cases. Understanding the implications of legal settlements on alimony can be crucial for both parties involved in a divorce.
What is a Legal Settlement?
A legal settlement, according to the Legal Information Institute at Cornell Law School, is an agreement that ends a dispute and results in the voluntary dismissal of any related litigation. This resolution can either be reached before or after court action begins.
Legal settlements can come in different forms. Some common types include:
- Lump-Sum Settlement: A one-time payment that resolves the dispute.
- Structured Settlement: A series of payments over time.
- Compromise Settlement: Parties agree to accept less than what they initially demanded to end the dispute quickly.
Types of Alimony Payments
Alimony, also known as spousal support or maintenance, is a payment one spouse makes to the other during or after a divorce. The purpose of alimony is to limit any unfair economic effects of a divorce by providing ongoing income to a non-wage-earning or lower-wage-earning spouse.
There are several types of alimony, including:
- Temporary Alimony: Awarded when the parties are separated but the divorce is not yet final
- Rehabilitative (Short-term) Alimony: Granted for a brief period to allow one party to get back on their feet financially
- Permanent Alimony: Paid indefinitely until the court orders otherwise or the recipient remarries or cohabitates
The laws governing alimony vary from state to state. Oklahoma courts consider factors such as the earning capacity of each party, the standard of living established during the marriage, and the duration of the marriage when determining alimony.
Depending on the unique circumstances of each spouse, the court could award alimony to one spouse over the other one. Typically, the custodial parent is more likely to receive financial support. The goal of alimony is to supplement one spouse’s income to the point where they can maintain a similar standard of living to what they had during the marriage.
Implications of Legal Settlements on Alimony
Legal settlements in a divorce case can significantly impact alimony payments depending on the type of settlement and other factors. In general, damages and legal remedies are taxable unless otherwise exempted by a section of the U.S. Tax Code. While this is the general rule, tax regulations related to settlements are based on the following question: what was the settlement intended to replace/remedy?
According to the IRS, all amounts from any source are included in the gross income calculations unless there is an exception. Section 104 details the fact that gross income does not include damages related to physical injury settlements. Punitive damages by a suit or agreement may also be excluded from taxable income.
Civil claims related to workers’ compensation, discrimination, back pay, or other employment matters are included in taxable income. This means that the divorce court could potentially include settlements in the income available for alimony.
Legal settlements and alimony payments are complex and intertwined issues. Each type of settlement has potential impacts on alimony, and these can be influenced by both state and federal laws. It is critical for individuals going through a divorce to understand these complexities and seek legal advice to navigate these challenges effectively.
If you are facing legal settlement and alimony challenges, consider seeking legal counsel. Nichols Dixon PLLC has years of experience helping families navigate change. Contact our firm today.