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A friend of mine says he got a “structured settlement” after his auto accident near Green Bay. What does that mean? What is a structured settlement?

A structured settlement is a financial arrangement, agreed upon by both parties, for paying the settlement amount in a personal injury lawsuit. Commonly, this is used for larger amounts of money. Instead of receiving a lump-sum payment for the accident, the injured person will get periodic installment payments. Perhaps a check will come every month, or every three months, or once a year.

The person, business or insurance company paying the money may prefer a structured settlement. A periodic payment plan does not require getting together a huge amount of money at once. Instead, the business can set aside smaller periodic payments, or purchase an annuity.

The person receiving the settlement may also prefer getting paid periodically, for at least three reasons:

  • A guaranteed income. Payments arrive regularly and predictably on specific dates, either for a definite term or until the end of life. 
  • Tax management. A single lump-sum payment may be subject to state, local, or federal income taxes at a very high rate. A structured settlement typically doles out money over several years. This provides significant tax savings or treatment as nontaxable income.
  • Spending control. A lump-sum settlement is intended to compensate personal injury damages extending over a significant period of time. However, some people do not have the self-discipline to budget for years of needs after they receive a check for thousands of dollars. Expenses include medical care, transportation, food, and other necessities. A structured settlement helps control impulsive spending and makes budgeting for future bills easier.

Cashing In a Structured Settlement

Some people may be pleased to receive regular, scheduled payments. Other people realize they dislike having their settlement given to them in bits and pieces. The most common complaints that Green Bay car crash lawyers hear from recipients of structured settlements include the following:

  • “I don’t feel like the money is mine when I don’t have complete control.”
  • “I want flexibility to spend more than my monthly check if I need to make a larger purchase like a car.”
  • “I have a sudden need for more money right now to pay for my child’s college education. It’s inconvenient to have to wait for a quarterly check.”
  • “I need money to pay off my credit card debt.”
  • “I could invest this money and get a better rate of return than the annuity gives me.”

For people in this position, there is a market in selling structured settlements. Individual investors or financial services companies can buy a structured settlement and give the owner a lump-sum payment for it. Technically, this is called a structured settlement factoring transaction. After that, the purchaser will receive the income from the settlement or annuity. The value of this transaction is whatever the buyer and the seller agree on.

The federal government and most states have enacted laws to protect the seller of a structured settlement. Most of these state laws are based on a model law developed by the National Conference of Insurance Legislators. Wisconsin is one of the few states that do not have a Structured Settlement Protection Act enacted into state law. However, the federal rules under Internal Revenue Code Section 5891 apply to structured settlement sales. It is also possible that another state’s regulations may have to be obeyed if the purchaser of a Wisconsin structured settlement lives in another jurisdiction.

Help From Hupy and Abraham

The Green Bay car crash lawyers of Hupy and Abraham are available to answer your questions. Contact us to discuss any aspect of your settlement for a Wisconsin car accident, including inquiries about structured settlement sales. You can reach us at 920-593-5050 (local) or 800-800-5678 (toll-free), or by completing the inquiry form on our website.