How is a Settlement Paid Out?

How is a Settlement Paid Out?

Receiving a settlement after a legal claim provides relief and helps cover financial losses. Many people wonder, how is a settlement paid out, and what steps are involved in accessing their funds. The specifics may depend on the type of claim, the agreement reached, and New York laws—making the guidance of a personal injury lawyer especially valuable during this process.

Understanding the settlement process can make the experience smoother and help ensure you receive fair compensation. Settlements are agreements between the injured party and the at-fault party or their insurer.

In most cases, these agreements resolve the dispute without going to trial. Once a settlement is reached, the process of receiving payment begins, which involves various steps, timelines, and parties.

Steps In the Settlement Process

Payments from settlements don’t arrive the moment an agreement is reached. There are several steps in the process, from formalizing the settlement to distributing the funds to the injury victim. Each step requires attention and care to avoid delays or complications.

Finalizing the settlement agreement

The agreement must be finalized once both parties agree to the settlement terms. This includes putting the terms in writing and having the parties sign the document. The settlement agreement outlines details like the payment amount, deadlines, and any conditions for payment. Many agreements have confidentiality clauses that prevent either party from discussing details publicly. While this does not affect payment, violating the clause could delay funds if disputes arise.

Approval from the court

For some cases, court approval of the settlement is required before any funds can be disbursed. This is more common for cases involving minors or individuals who cannot fully consent to legal agreements. The court ensures the settlement is fair and in the injured party's best interests. For example, if a minor is awarded a settlement after a car accident in New York, the court may require the funds to be placed in a trust until the minor turns 18.

Payment from the at-fault party or insurer

The at-fault party or their insurer is responsible for releasing the agreed amount. Insurance companies usually issue payments quickly once all documents are received. However, delays can occur if forms are incomplete or disputes arise about the terms. Some settlement payments come in lump sums, while others are structured payments over time. Depending on the agreement, a structured settlement spreads payments over months or years.

Attorney fees and deductions

Legal representation often involves contingency fees, meaning the attorney is paid a percentage of the settlement. Once the settlement check arrives, it is sent to the attorney’s office.  The attorney deducts their agreed percentage and reimburses any case-related expenses they covered. These costs may include court filing fees, expert witness charges, or medical record requests. The remaining funds are then distributed to the client. Attorneys provide a detailed list of all deductions so clients know where their settlement funds are going.

Paying off liens

If the injured party received medical treatment covered by Medicare, Medicaid, or private health insurers, those entities may file liens against the settlement. These liens claim repayment for medical expenses related to the injury. For example, if Medicaid paid for a surgery after an accident, they will seek reimbursement for the associated costs. Your attorney negotiates with healthcare providers and insurance companies to resolve these liens before disbursing funds to you.

Releasing the remaining funds

After deducting legal fees, costs, and lien payments, the attorney releases the remaining funds to the client. These funds are typically paid through direct deposit or a check. Clients should plan how to use the funds, such as covering medical bills, lost income, or future healthcare needs.

Structured settlements versus lump sums

Not all settlements are paid in one large amount. Some are structured and paid over time. Choosing between a structured settlement and a lump sum depends on your financial situation and future needs.

Lump-sum payments

Lump sums provide the entire settlement amount upfront. This type of payment is ideal for those who have immediate needs, like medical debt or home modifications due to a disability. With a larger amount of money available, you have greater freedom to use the funds.

Structured payments

Structured settlements break the payment into smaller amounts paid regularly over time. This arrangement is useful when the settlement is large or if the recipient prefers predictable, stable income.  For example, someone unable to work long-term might opt for structured payments to replace lost wages over several years. Structured settlements are often customized to meet the recipient's needs.  Payment schedules can vary, with some recipients choosing monthly payments and others preferring bi-annual payments.

Unique Considerations For New York Settlements

New York state laws influence how settlements are assessed and paid. Specific rules, like the statute of limitations and liens, must be accounted for during the process. The statute of limitations determines how long you have to file a claim after an accident or wrongful act. Victims of personal injury cases in New York generally have three years to file. If the claim is filed after this period, you may lose your legal right to seek compensation. Some exceptions, like cases involving government entities, have even shorter deadlines.  Settlement negotiations can begin once a claim is filed within the appropriate timeframe. Filing your claim promptly ensures payment is not delayed unnecessarily.

Medicaid and Medicare liens

Liens are a big deal in New York settlement cases, especially when medical bills are involved. Medicaid and Medicare must be reimbursed for any payments made for treatment related to the injury. Failing to resolve liens can prevent settlement funds from being released. New York law also requires Medicaid recipients to report settlements, as these may affect future Medicaid eligibility. Consulting your attorney helps address these requirements without risking your healthcare coverage.

Comparative negligence in New York

New York follows a comparative negligence rule, which means that fault is split among parties involved in an accident. The percentage of fault assigned to you affects the settlement amount you receive.  For instance, if you are deemed 20% responsible for a car accident, your settlement will be reduced by 20%. New York’s comparative negligence laws can complicate settlement negotiations.  Have your attorney review the final calculation to ensure the fault percentage and payment reflect the facts accurately.

Tax considerations for settlement payments

Settlement payments sometimes raise questions about taxes. The taxability of your settlement depends largely on its purpose.

Compensation For Injuries

Settlement payments for physical injuries or sickness are typically not taxable under federal law. Whether the compensation comes from lost wages, medical bills, or pain and suffering, it is generally tax-free if it links directly to a physical injury. However, emotional distress or mental anguish awards may be taxed unless tied to physical injuries. For instance, if emotional pain stems from untreated whiplash after an accident, that portion of the award could remain tax-free.  Consulting a financial professional ensures you comply with applicable tax rules and all the financial elements of a settlement.

Punitive damages

Sometimes, courts award punitive damages to punish the at-fault party for especially reckless behavior. Money received as punitive damages is almost always taxable. Track documentation to report this income accurately when filing your taxes.

Interest on settlement payments

If a settlement payment is delayed and accrues interest, that interest is generally taxable. This applies even when the underlying compensation isn’t taxable. Keeping track of this income is important during tax season.

Planning your settlement funds

After receiving your settlement, managing the money wisely ensures long-term financial security. Consider consulting a financial planner to allocate your funds in a way that meets your immediate and future needs.

Cover pressing costs

Start with immediate expenses like medical bills, mortgage payments, or overdue utilities. Reducing high-interest debt provides relief and puts you in a stable financial position.

Save for long-term needs

If your injuries prevent you from returning to work or require ongoing medical care, set aside money for future expenses. A trust or annuity can ensure you have access to funds when you need them.

Invest in reliable options

Investing part of the settlement may provide growth for your funds over time. Consult reputable investment professionals to align your payment with your long-term goals while minimizing risk.

Tips for avoiding settlement delays

Settlement payouts can take longer than anticipated if certain factors aren't carefully managed. Delays are frustrating and can prevent you from accessing funds when you need them the most. Taking proactive steps can help speed the process and avoid unnecessary setbacks. Provide complete and accurate information The first step to avoiding delays is submitting all necessary paperwork correctly and promptly. Make sure you provide accurate documents, including medical records, loss of income statements, and any other required evidence. Missing or incomplete information often leads to unnecessary back-and-forth with insurers or attorneys, slowing the entire process. Respond quickly to requests Whether it’s your attorney or the insurance company asking for additional details, responding quickly helps keep things on track. Providing clarity or requested documents as soon as possible ensures there are fewer hurdles in finalizing the settlement. Address liens early Medical liens or other claims against your settlement should be addressed as soon as they arise. If Medicaid or Medicare paid for your medical treatment, your attorney likely needs time to negotiate and settle these liens before distributing the payout. Waiting to address liens can delay the entire process. Avoid making changes to agreements Introducing changes can create setbacks once terms are agreed upon during settlement negotiations. Ensure you're satisfied with the agreement before signing. If possible, discuss all terms in detail beforehand to avoid misunderstandings that could prolong finalization. Stay in communication Keep the lines of communication open with your attorney throughout the settlement process. Regular updates can help you catch and address potential issues early before they cause significant delays. Understand structured payouts It’s important to know that structured settlements involve scheduled payments over time. Remember that payments will follow the agreed schedule if you've selected this option. If you want a lump sum, clarify this preference early in negotiations to avoid confusion. Be aware of court processes Court approval is often required before a settlement payout is made in cases involving minors or individuals incapable of managing their own finances. This step takes additional time, so be prepared for it if it applies to your situation. While some delays are unavoidable, taking these steps helps ensure the process runs smoothly. Staying organized and informed can make a difference in receiving your settlement efficiently.

Hach & Rose Can Help

Understanding how settlements are paid ensure you can better prepare for what happens after your case is resolved.  Knowing how New York laws and the settlement process work helps ensure you receive your compensation without unnecessary delays or surprises, whether your settlement involves a lump sum or structured payments. Contact Hach & Rose professionals at (212) 779-0057 if you have questions about settlements in New York or need help pursuing your claim. Getting proper assistance secures your financial future after an injury.