Lump Sum Orders: a series of lump sum orders - V- a lump sum order payable by instalments

What is a lump sum order?

Quite simply, a lump sum order is an order for one party to pay another party a lump sum of money.

These orders can be made upon finalisation of divorce, nullity and judicial separation and generally cannot be varied or discharged, although there are very limited exceptions.

When one party is ordered to pay the other a large sum of money, but there is insufficient capital immediately available to facilitate this, the court can instead make a series of lump sum orders, or a single lump sum order payable by instalments.

Care must be taken when deciding whether your financial settlement includes a lump sum payable by instalments, or a series of lump sum orders. The distinction between the two is subtle, yet the consequences are far from it, as highlighted in the leading case of Hamilton v Hamilton [2013]. The pro’s and con’s of each type are explored below.

Series of lump sum orders

An order for a series of lump sum payments is an order for several separate lump sums to be paid which are payable on specific dates or on specific events occurring and they are usually for a certain purpose. Like a single lump sum order, they cannot later be varied or discharged.

Advantages:

• It provides certainty in both quantum and timing.
• It avoids the possibility of the order being varied further down the line, which can negatively impact either party, as set out below.

Disadvantages:

• There are restrictive deadlines in place for payments to be made.
• The payments are not flexible, they cannot be changed. If you do not pay them on time and in full, you could be open to the Court taking enforcement action.
• The Court can only vary in limited circumstances and only in terms of timings. So, for example, if the payer is not to blame for the delay in paying, and it does not prejudice the recipient, then the timing of the payment can be varied.
• If the order is not drafted correctly, then it is open to interpretation by the Court that the payments were intended to be a lump sum payable by instalments and thus open to future variation, which again can negatively impact either party.

Lump sums payable by instalments

A court can order that a single lump sum is paid by instalments over a certain period of time, if it is deemed appropriate. An order of this kind can be varied or discharged by the Court. It is possible to vary the overall figure payable, the timings of the payments, and it may also be possible to discharge or suspend some or all of any remaining instalments.

Advantages:

• The order can be varied, taking into account all the circumstances of the case, such as a change in either party’s financial situations, so the lump sum can either be increased or decreased. However, this can also be a disadvantage to both parties (see below).
• The court has the power to award interest to the receiving party for any late payments, but only up to the date on which the payment falls due.
• Payments can be suspended and later reinstated should the payer need more time to satisfy their liability, so this provides more flexibility with less rigid deadlines.

Disadvantages:

• The order is open to variation, and therefore does not provide certainty for either party.
• The payer is open to their liability being increased.
• The receiver risks their claims being dismissed and parts of the order remaining unpaid.
• Any interest received may be subject to tax.

Conclusion

There are advantages and disadvantages to both types of lump sum orders, but if you are looking for the certainty of a lump sum with no option for variation, then a series of lump sums would be better suited (if appropriate based on the facts of the case). However, you should bear in mind the inflexible nature of these and your ability to pay the sums being ordered to avoid enforcement action.

It is therefore imperative when drafting a financial order to include a recital specifically recording the nature of the lump sums for complete clarity. For example, whether they are payable in one payment, a series of lump sum orders, or a single payment payable by instalments. This will avoid any later issues in interpretation and the need to go back to Court again for clarity, which will inevitably incur unnecessary costs for all parties.

Written by: Claudia Stachini (Solicitor)