If you've just won a difficult personal injury lawsuit, congratulations! You've undoubtedly been through a lot, but the journey isn't necessarily over yet. Here are some important things you need to know as you go forward with your post-settlement life.
Your Award May or May Not Be Tax Free
Personal injury awards are intended to compensate sufferers for critical financial damages such as lost past, present and future wages. To make that goal possible, these awards are considered non-taxable -- for the most part. There still may be some financial considerations you need to be aware of when it's time to submit your tax return and supporting documentation to the IRS.
Personal injury settlements usually consist of several different categories of financial award, some of which can be taxed. For instance, compensation for lost wages, physical injury and medical expenses is non-taxable, but punitive damages are fully taxable and "pain and suffering" damages are partially taxable. You'll want to discuss these distinctions with your CPA and lawyer as early in the case as possible.
The Award Amount Might Be Appealed
A hard-fought personal injury lawsuit can make you feel as if you've just been through a war, which in a sense you have. But if you've requested and received an exceptionally handsome settlement award, there may be grounds for appeal by the defendant. To pursue this strategy, the defendant's personal injury attorneys must petition for a new trial so an appellate court can review the award amount. If your punitive damages are more than 10 times the amount of your actual damages, your award may be revised drastically even as you're paying the additional legal fees for "Round Two."
For this reason, your personal injury lawyer may recommend that you either reduce your claim or agree to any pre-trial settlement that can reasonably fulfill your needs, even if it means leaving significant money on the table. Personal injury settlements in which all parties agree on the award amount should put an end to the battle once and for all, at least where that lawsuit is concerned. (A civil lawsuit may still be pursued separately from a criminal lawsuit and vice versa.)
You Still Have to Collect
The court may have found in your favor, but don't expect a wheelbarrow full of cash to be wheeled to your doorstep. Being awarded a sum and collecting the sum are two different things -- and the collection process can be a tricky one. The defendant may be sluggish to make payment or even have insufficient funds to pay in full. This is your cue to discuss the most sensible course of action with your personal injury lawyer. Effective options may include:
- Gentle persuasion - If the defendant has the money and is simply dragging his feet, a polite letter from your personal injury attorneys noting the possible credit impact and other consequences of an unpaid judgement may get him moving.
- Multi-stage efforts - Instead of trying to extract the full award all at once, start by getting permission to divert some of the defendant's liquid assets such as wages and cash savings. Once you've secured some of your award in that manner, you can then go after harder-to-secure assets such as property if necessary.
- Accepting less than 100 percent - Yes, you refused to consider a pre-trial settlement, but that doesn't mean you can't settle for less than the full amount afterward. If the defendant truly can't pay the full award anytime in the foreseeable future, you may decide that it's just as well to settle for what you can get. You may even sell the defendant's debt to a third party for a reduced amount.
Understanding how personal settlements work, even after you've won, can help you manage your legal and financial outcomes in the most clear-eyed and sensible manner possible. Make sure you go over all the various "what-if" scenarios with your personal injury lawyer at every stage of your lawsuit, and you'll be prepared for any surprises that may turn up!
For more information and advice, talk with professional lawyers, such as those at Lawyer, Lawyer, Dutton & Drake LLP.