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What is a Property Settlement Note & How Does it Apply to My Divorce?

What is a Property Settlement Note & How Does it Apply to My Divorce?

When couples in the middle of divorce start to negotiate terms and conditions of a property settlement, many will find a structured settlement the most appropriate solution. A structured settlement entails a series of smaller payments over a period of time rather than a lump sum payment up front. The total of the smaller payments comes to a greater sum than the original “lump sum” payment would have been because the recipient typically receives interest on the amount to compensate them for waiting for the delayed payments.

The structured settlement is typically used in divorce situations where one party has a valuable, but non-liquid, asset that they wish to keep (i.e. house, business, etc.), but not enough other marital property to generate an offsetting award. In this situation, the structured settlement would be the best option to guarantee that both parties receive a fair amount of marital assets without one losing the non-liquid asset that they wish to keep, but can’t afford to “purchase” from their ex.

For example:

John wishes to stay in the home he and his soon to be ex wife, Susie, shared during their marriage. The agreed upon settlement amount is more than he is able to pay. John can still stay in the home and provide Susie with the agreed upon settlement amount with a property settlement note. Because the money/settlement is a division of property, it is typically not taxable so the recipient only pays taxes on the interest, not the principal. The property settlement note allows John to keep the house and Susie to receive a continued income stream. Please be sure to obtain tax advice before entering into a binding settlement agreement.

The same solution can be applied in situations where one of the divorcing parties wishes to keep the family business, but cannot afford a lump sum payment amount due to their ex-spouse.

Other solutions that are sometimes utilized in this type of situation include: lump-sum settlement, deferred lump-sum settlement payment, etc.

If you need to discuss whether a structured settlement could be appropriately applied to solve difficulties in dividing your marital assets, get in touch with the divorce attorneys at Arizona Family Law Attorneys.

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