Fair Market Value For Alimony Pay Off

[coloradodad08]

I understand that I can pay off my ex since I have an end date to the Alimony and I know how much I pay her per month. I heard that I would actually want to determine the fair market value of making a lump sum payment. How do I determine the fair market value on the pay off?

Colorado

[4eyedbuzzard]

I'm not familiar with alimony settlements, but the situation reperesents that of an annuity. You would need to calculate the present value of an ordinary annuity or that of an annuity due depending upon if the payments are due at the beginning(due) or at the end(ordinary) of the payment periods. This will be need to be agreed upon mostly based on settlement date relative to a payment date, as will the discount rate and any adjustments you may agree upon(usually a lump sum generates a benefit in favor of the party paying off, and might be incorporated into an adjusted present value, discount rate, etc). "Cash is king" and you should derive some benefit other than just getting rid of the inconvenience of making periodic payments.

Note that there are probably income tax implications, which could be quite significant to such a settlement as well.

[aaron]

Calculation of present value.