A structured settlement is when a lawsuit is resolved out of court by one side agreeing to pay the other over a period of time in a planned format that both sides have agreed upon. This is a common way to settle a case in a way that is beneficial to both sides. However, there are definitely advantages and disadvantages to going the structured settlement route.
The advantage of a structured settlement is the party to pay doesn’t have to come up with a huge sum of money at once. Structured settlements are usually paid in the form of annuities. For the party paying it acts like a payment plan, rationing out the payments over a set period of time. However, the drawback is that the company is bound by the settlement for a long time period, in which it has to continue to record in its accounting records that it is paying a settlement. Additionally, the amount of a structured settlement is often a lot larger than if the company reached a smaller amount in a lump sum.
Taxes are another factor when it comes to structured settlements. Annuities can often be paid before taxes are assessed. Therefore, the tax liability for the party paying becomes less once the annuity has been paid. This is another advantage for the party paying.
For the party receiving payment, one of the biggest advantages of getting a structured settlement is the fact that they will get money for sure. Left up to the court, they might come away with nothing, or come away with some large figure that will force the company into bankruptcy. In these cases, the plaintiff could end up walking away with a huge multi-million dollar settlement that they will never see a penny of. By going the structured settlement route, they stand a better chance of at least recovering some of the funds. There’s always the chance that the legal proceedings don’t go the plaintiff’s way and they end up finding their case dismissed. Accepting a structured settlement can avoid throwing a coin-flip case on the court and just seeing what happens. However, the obvious disadvantage for the plaintiff is that they won’t be seeing a large sum of money all at once. Instead, the money will trickle to them yearly. This is a lot better than not getting any, but it still might take years for their damages to truly be reimbursed.
Structured settlements are something that have to be analyzed exhaustively before being agreed to. If both sides are in agreement that it is the best way to proceed, it can save a lot of heartache, as well as money for both sides. It is best to consult a lawyer before even acknowledging a structured settlement.
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