structured settlement 101
Written on Friday, 7 of December, 2007 at 11:51 pm
I was watching the news last night and encountered the phrase “structured settlement”. With the word “settlement”, I immediately associated it with “divorce”. However, I wasn’t satisfied with this mere assumption, so I decided to do research about it. Here’s what I found out:
- Structured Settlement is defined in Wikipedia as “a financial or insurance arrangement, including periodic payments, that a claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment obligation.”
- This is the usual structured settlement procedure: First, an injured party (the claimant) settles a tort suit with the defendant (or its insurance carrier) pursuant to a settlement agreement. This agreement provides that, in exchange for the claimant’s securing the dismissal of the lawsuit, the defendant (or generally its insurer) agrees to make a series of periodic payments over time.
- A structured settlement, according to ExpertLaw, “can provide for payment in pretty much any schedule the parties choose.” That is, settlement may be paid in annual installments over a number of years, or it may be paid in periodic lump sums every few years.
- One of the reasons why a lot of people opt for structured settlement is because of tax avoidance. A structured settlement, with the correct set-up, may significantly reduce the plaintiff’s tax obligations as a result of the settlement. In some cases, it may even be tax-free!
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