Your lawyer has investigated your accident, found the responsible party, and successfully negotiated a settlement with the insurance defense team. What’s left to do? In today’s post, we’ll discuss what happens once someone reaches a personal injury settlement and how it is ultimately paid out to the injured party.

Ways Personal Injury Settlements Can Be Paid Out

There are two possible ways you can receive your portion of a settlement. Your lawyer will help you decide which method is best and propose it to the insurer.

Some of our clients prefer a lump sum arrangement where they receive all the money at once. Others prefer a structured settlement with monthly, quarterly, or yearly payments. If you want a structured settlement, you can choose how frequently you need payments and how much they should be.

Steps To Receive Your Settlement

Signing the Paperwork

Once you decide how you’d prefer to receive your compensation, all parties will sign a settlement agreement. You’ll also read and sign a form that releases both the insurer and the defendant. Once you sign, you will not be able to reopen negotiations or file another lawsuit related to the accident, even if you find new injuries or if your existing injuries worsen.

After the paperwork is signed, the insurer has a limited time to write the check and send it to your lawyer. Once your lawyer receives the check, they’ll deposit it into a legal trust account for the next steps.

Paying Remaining Expenses

Some parties may have “liens” against your settlement. Liens cover the remainder of expenses incurred in the accident’s aftermath. Some liens include:

Medical liens – Hospitals, clinics, private health insurers, and the government may claim a piece of your settlement through a medical lien. These liens cover healthcare costs that your insurer declined to pay or did not pay previously. An insurer may also take a medical lien as reimbursement for a payment they previously made on your behalf.

Repair liens – A mechanic or contractor may be entitled to a portion of your settlement for property or vehicle repair costs.

Workers’ comp liens – You may have received workers’ comp benefits for medical bills and lost wages, then filed a lawsuit for the other compensation you needed. A workers’ comp insurer may seek partial reimbursement for workers’ comp benefits from a portion of your settlement.

Your lawyer will attempt to negotiate any liens on your settlement to the lowest possible amount, then pay them from the trust.

Paying Attorneys’ Fees and Wrapping Up

Many personal injury lawyers work on contingency. In other words, you will only pay attorneys’ fees if your case settles or a court awards you damages. Once your lawyer pays off liens from the trust, they’ll deduct a percentage of the remainder to cover their services.

You might be able to estimate the total legal fees by looking at your representation contract. Firms will include a clause detailing the percentage of your compensation your lawyer is entitled to receive.

Receiving Your Compensation

At a final meeting, your lawyer will give you documents outlining the original settlement agreement, the liens they paid off, their charges for legal services, and the final amount they’ll release to you. You can receive your portion of the settlement by check or electronic transfer, then use it however you wish.

Are Personal Injury Settlements Taxed?

In most cases, the federal and state governments do not tax personal injury settlements or awards. You should know, however, about some possible exceptions:

Emotional distress – The IRS will not tax settlements related to your losses from a physical injury. If a part of your settlement is related to emotional distress rather than a bodily injury, you may need to pay taxes on that portion.
Wages – A piece of your settlement may be taxable if it covers lost wages.
Punitive damages – If your personal injury case succeeds at trial, a court may award you punitive damages meant to deter others from committing similar negligent acts. This money is separate from the economic and non-economic losses you initially claimed. Therefore, any punitive portion of a personal injury award will be taxable.
Interest – If the defendant does not pay the damages a court awarded you, perhaps to file an appeal, interest will accrue on the money. This interest is taxable.

If taxes apply to your settlement, your lawyer will tell you how to list the taxable portions on your returns.

Contact a Personal Injury Attorney from Law Offices of Ronald J. Resmini, Accident & Injury Lawyers, Ltd. in Providence

The personal injury attorneys at the Law Offices of Ronald J. Resmini, Accident & Injury Lawyers, Ltd. can answer your questions about how settlements work. We’re a trusted family-run firm with decades of experience between us. Our founder serves as a respected mentor to other attorneys in Rhode Island and across America.

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