Congratulations on winning your personal injury lawsuit!
You’ve been able to achieve some measure of justice for your injuries and hardship and now it’s time to get paid. There are, broadly speaking, 2 different ways for how personal injury lawsuits are paid out.
Within these 2 choices are a number of factors that have to be considered.
1. Lump sum payout
The first way is the most straightforward and it’s the lump sum payout. As the term suggests, you get the entire amount of the settlement upfront. This form of payout has the obvious advantage of getting access to all your money right away. It’s ideal for people who have good money management and investing skills, and are confident in their ability to manage funds over the long term.
2. Structured settlement
The other option is the structured settlement, which pays out your damages in periodic payments. While you don’t get immediate liquidity with this option, you do get the benefit of a long-term, stable financial plan.
Structured settlements are where a lot of different choices have to be made, since there is no one-size-fits-all settlement plan. The frequency of payments is the most basic factor that has to be decided, which in turn impacts distribution amounts. You may also choose to have a benefit payable to a spouse in the event of your death before the settlement is fully paid.
You can choose a payment schedule ranging from monthly to quarterly to annually. It’s also not carved in stone that you must receive the exact same amount with each payment. For example, if you win a $100,000 judgement, payable annually over 10 years, that doesn’t automatically mean you get $10K each year. The distribution amounts are negotiable.
Depending on your situation, you might choose to take smaller amounts upfront, thereby allowing interest to accumulate. This is particularly attractive to people who anticipate increased medical costs over the term of the settlement. On the flip side, you may choose more money upfront, using the same logic that would be behind taking the lump sum payment—getting cash in your pocket ASAP.
Expenses you will face
Winning your case means there will also be expenses that have to get paid. If your medical bills were substantial, it’s possible healthcare providers will have a lien against your judgement. That means they automatically get paid. This would be an incentive to negotiate either a lump sum payment or at least get substantial money upfront.
Your attorney will also be in line to collect. Most personal injury cases are taken on contingency, meaning your lawyer is only paid if they win the case. As the money rolls in, they are entitled to whatever percentage was negotiated at the outset of your case.
Needless to say, the Internal Revenue Service (IRS) will want their share of the proceeds. The portion of your settlement that was simply reimbursement for expenses (healthcare costs, lost wages, etc.) aren’t taxable, but any punitive damages are. Make sure you talk to both your attorney and a tax professional in determining which share of your money falls into this category.