Assume that I owe you $1,000.00 (One Thousand Dollars), I could pay you back as follows:
- One Thousand Dollars in one lump sum in one month’s time.
- Two payments of Five Hundred Dollars.
- Five payments of Two Hundred Dollars.
- One Thousand Dollars in one lump sum, but I’ll pay it five years from now.
- One Thousand payments of One Dollar.
Most people would recognize that the fourth and fifth options are not fair and although each one adds up to One Thousand Dollars, because of inflation and the time-value of money, it is not really One Thousand Dollars.
This illustrates the “time-value” of money. In other words, money today is worth more than money tomorrow. As time goes on, inflation reduces the value of your money. So, even if I pay you $1,000 in five years (as an example), its real worth would be something like $950 – $990, depending on inflation and other factors.
Therefore, in a divorce, when you are making or accepting payments, you have to take into account the time-value of money. Typically, if you owe money, it is better to pay it over time (this assumes that there is no interest payments). Alternatively, if you have to pay money and have to pay it in one-lump sum, you can argue that because your money today is worth more than money in the future, that you deserve a discount in what you pay.
For example, if you have to pay spousal maintenance (alimony) and your payments come out to $1,000 per month for 5 years, for a total of $60,000, then you might want to agree to pay a lump-sum of $55,000. Your argument would be that a lump sum payment of $55,000 is worth more than 5 years of payments, with each payment of $1,000.
Pre-payment of amounts owed can work in many situations, not just for a payment of spousal maintenance. However, typically, you cannot pre-pay your child support obligation.
If you are considering getting divorced or are seeking a new divorce attorney on Long Island, then David Badanes and the Badanes Law Office can help you. David Badanes can explain how the time-value of money can help your situation.
If you need an attorney to represent you in your divorce, call David Badanes, Esq. and the Badanes Law Office, P.C. today at 631-239-1702 or email me at firstname.lastname@example.org. The Badanes Law Office has offices in Northport and Uniondale.
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