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If you are approaching settlement in a case that doesn’t involve an injury, you may be wondering about your financial planning options.

Personal injury settlement payments are not subject to income tax. Unfortunately, plaintiffs are not afforded the same break when they receive a settlement from a case that is not related to bodily injury. Because non-physical injury-related cases have different rules, there are unique financial planning tools available for the plaintiffs in those cases.

Because personal injury settlements are tax-free, they are considered “qualified.” In contrast, “non-qualified” settlements are those that do not involve bodily injuries. Non-qualified cases  include (but are not limited to):

  • Employment litigation such as wrongful termination, sexual harassment, discrimination, mental anguish, etc.
  • Directors and officers (D&O) and errors and omissions (E&O) claims
  • Construction defects
  • Whistleblower cases
  • Contract disputes
  • Punitive damages
  • Environmental claims
  • Patents and intellectual property claims
  • Attorney fees associated with these types of cases

A non-qualified assignment (NQA) is a structured plan that specifically applies to cases that do not involve physical injury. What “a structured plan” means is an assignment of an obligation to pay money in the future. With an NQA, a plaintiff can reap the benefits of financial planning by spreading their settlement over a long period of time instead of receiving it in one lump sum.

There are multiple benefits to receiving a settlement over time. For one, a lump sum settlement guarantees the highest amount of tax and the least deductions in a single tax year. Instead, this plan offers the opportunity to receive payments designed to spread the tax burden over time. A structured plan also helps recipients control the timing of the receipt of income. Therefore, they can plan each year around the additional income rather than accepting one large sum of money and then figuring out how to make it last.

At Milestone, we experienced firsthand the struggles of hundreds of business owners who recovered in the BP litigation. While they were happy to see their claim resolve, they cringed when they saw what they were left with after attorney fees and federal and state taxes.

We are one of the only companies to offer an independent, non-qualified solution. Our non-qualified options allow plaintiffs and attorneys to evaluate the amount of the settlement or fee they choose to take in the year of settlement. We welcome you to give Milestone a call for more information.

 

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