How Are Settlements Paid?

You've finally reached a settlement agreement in your case, but how do you get your money? Settlement payments can be made in a number of different ways: lump sum payments, installments, or even in loose change.

You may have seen the 2023 story of JMF Fabrications that tried to pay its $23,500 settlement to Fired Up Fabrications in coins because the settlement was not specific on how the funds needed to be paid. The delivery required a forklift! The judge in Colorado overseeing the case was not amused and ordered the money be paid by check or another agreed upon payment type.

So how exactly are settlements supposed to be paid? Do you receive the entire settlement amount upfront or is it paid out over time? What about attorney’s fees that need to be paid if you agreed to a contingency fee in your personal injury case?

Structured Settlements

You may have heard of structured settlements from sketchy-looking TV or radio ads offering to get plaintiffs a lump sum instead of scheduled payments. Despite what you may have heard, structured settlements are a common way of delivering large settlement funds to injured parties over an extended period of time. This method of payment can ensure that an injured plaintiff receives regular payments for life or a steady stream of income over a few years. Many times the funds are put into a trust account to protect them for the injured party.

It may be better for you to obtain the settlement in lump sum depending on your circumstances, but keep in mind structured settlement payments may reduce tax liability for settlement payments entirely. Many state laws also guarantee that even a bankrupt insurer will continue to cover structured settlement payments.

Lump Sum Payment

Settlement payments may also be made in one lump sum, in which the majority (if not all) of the settlement funds are paid at once to the injured party. A lump sum is often desirable because it guarantees the entire settlement gets to the intended party. Receiving the money up front also allows the party to pay medical bills and other living expenses which may be due from their car accident or other personal injury claim.

Typically, lump sum settlement payments are delivered to plaintiffs in the form of a check, not cash or coins. Sometimes these lump sum payments are transformed into trusts that support disabled plaintiffs throughout their lives.

Many settlements combine structured settlement payments with lump sums, giving victims an initial injection of cash followed by a steady flow of financial support. This is a good method of distributing the settlement money because it allows medical expenses to be paid and the party can maintain their quality of life.

Class Action Settlements

Large class action settlements may be paid out of a general fund, with a claims administrator determining how much each claimant will receive. Sometimes this is as simple as filling out an online questionnaire and providing contact information. In more serious cases, it may involve evidence of serious injury to receive a greater payout. The law offices who handle class action settlements have a specific settlement process which must be followed to receive your financial compensation from the overall class. The attorney’s fees are set by the court.

Attorney’s Fees

When your personal injury lawsuit or other type of case begins you reach a fee agreement with your attorney. When a settlement offer is proposed and a fair settlement is reached one portion of it will deal with your attorney being paid. Pay attention to the details of how these fees are going to be paid and how they will affect your ultimate settlement check.

If you have questions about how your settlement may be paid including any tax implications based upon the type and amount of compensation you receive, consult an experienced personal injury attorney in your area.

Related Resources:

• How Settlement Negotiations Work (FindLaw's Law and Daily Life)
• How To Negotiate a Car Accident Settlement (FindLaw's Law and Daily Life)
• Resolution Before Trial: Settlement (FindLaw's Law and Daily Life)