What is a Structured Settlement? Can I Get a Cash Advance on a Structured Settlement?

There is a lot of confusion about what is a structured settlement. Many people will search the internet trying to figure out if they should accept one, what are the benefits and drawback and if they have one what is the process to liquidate if the time comes and they need a lump sum of cash. At the outset it is important to briefly explain that a structured settlement, in a very general sense, relates to the settlement of a lawsuit whereby the injured party (often referred to as a plaintiff) accepts payments overtime to compensate for his or her injury instead of all the money upfront. By virtue of the fact that a “structured settlement” is in fact a “settlement”, the plaintiff and defendant must come to an agreement that the lawsuit, claim or demand be settled in this fashion.

It is also important to recognize that when one is talking about a structured settlement, they are merely referring to fact that a resolution of some claim occurred that resulted in periodic payments overtime. A settlement structured in this fashion can result from claims or cases ranging from serious personal injury to workers’ compensation to employment disputes and more. While the structures of settlements of these types of cases may all look the same, the legal, tax and financial implications differ depending on what the basis of the underlying claim that gave rise to the structured settlement was. The most significant differences for some people may be the future potential assignabillty of a structured settlement if need comes about in the future where the recipient wants to “cash out” the settlement and get all the money (or part of it) upfront.

It is critical to understand that much of the law in this area is governed by specific state code provisions. What you might be entitled to do in Connecticut if you live there, may differ than what a California structured settlement recipient has the right to do. It can be a difficult task to ascertain what your options are. For example, you may live in a state that allows (what is often called) a commutation provision or process in the event you received a structured settlement from a workman’s compensation case or you may live in a state that allows you to assign your right to worker’s compensation to a 3rd party buyer. In particular, the assignment or liquidation of worker’s compensation is very much controlled by the state where the claim was resolved.

Somewhat differently, if you have a structured settlement from a personal injury lawsuit, there is a specific Code provision that governs when and how you can liquidate some or all of the structured settlement and that Code provision works in tandem with, in most cases, a state law in the state where you currently reside (not necessarily where the case was settled). The Federal and State law in this area of assignment of structured settlements require that a hearing is held in a civil court and that the court find, among other things, that the assignment of your structured settlement payment is in your best interests. While unlike, in most cases, with worker’s compensation payments, you do potentially have the right to petition a court to allow you to liquidate structured settlement payments from a personal injury lawsuit.

This brings to the natural question of whether you can get a cash advance on a structured settlement. As noted earlier, the answer is very specific to the state where a workers compensation case was settled. With respect to personal injury structured settlements, one must be clear what they are referring to as a structured settlement cash advance. As we discussed, getting a lump for a structured settlement is generally permitted if the court in the state where you live approves the transaction as in your best interest. This process however can take between 1 to 2 months and often times the need for an immediate cash advance exists. When this is the case, some structured settlement buyers (subject to state law again) may release a portion of the lump sum that they have agreed to pay if and when a judge approves the transaction in your home state. This process and the ability of a cash advance on your lump sum is something you should address with the 3rd party making an offer to buy your structured settlement before you sign any documents. 

Like many areas of the law, a structured settlement is heavily controlled by state provisions and the actual documents themselves. Before pursuing any liquidation options you should consider alternatives and potentially meet with a legal advisor to discuss the implications of the transactions. While there are countless justifiable reasons why cash now can benefit any of us, there are often good reasons why converting future payments rights to a lump sum may not be prudent.