What would you do if you got a notification from the bank and found out that you had a million dollars? Would you know how to protect it in the best way? What is the first thing you would buy?
A successful personal injury case will end in a negotiated settlement or court judgment covering you for the damages and losses you’ve suffered since you got hurt.
A personal injury settlement could add up to hundreds of thousands of dollars, maybe even millions of dollars depending on the case. But once you get a settlement, how should you manage that windfall? What’s the best way to manage all that money?
Personal injury attorney Gabriel Sepulveda-Sanchez recently spoke about this topic with Paul Vega, who is a settlement consultant, the founder and President of Vega Settlement Group, and a Series 7 and Series 63 licensed financial advisor located in Los Angeles, California.
Paul brings to the table over 20 years of expertise in the financial industry and another 8 dealing with plaintiff settlements. He specializes in personal injury, wrongful death, medical malpractice, punitive damages, Medicare set-asides, and employment settlements. Using this experience, Paul designs complete financial portfolios to help his clients properly handle their settlement windfalls, managing long-term goals while assessing for risk tolerance.
Listen to the conversation now on Episode 2 of the Behind the Bar podcast here.
You Won a Settlement – Now What?
It can be hard to hold onto money. If it’s in your checking account, you need to budget and build a plan. How are you going to use your settlement? How will you make it last?
Even though a settlement is meant to compensate you for your losses and support you for the future, many people can’t help themselves and end up throwing the money away.
Consider one of Paul’s clients who spent their settlement money before the checks were even signed by the attorneys. Out of a $200,000 total payment, they spent $80,000 on earrings and $50,000 on a used Corvette. Another client gambled away a $3 million settlement.
Cars. Watches. Designer suits and bags. Maybe you want to buy a house in cash with your windfall, but is that the right move? Temptations are everywhere – and human beings aren’t always rational. People can be quite emotional, especially in new and unfamiliar situations. Minors especially are vulnerable if they receive a large payout as soon as they turn 18.
Realistically, when you’re facing a windfall of this magnitude, you must play a bit of defense against yourself in order to take a more structured approach to your finances.
Unfortunately, you may have to defend against others who want a piece of the pie too. Maybe a friend or family member approaches you with an opportunity to invest in a business. Whatever you’re thinking, you should run it by a financial advisor to make sure it’s actually a smart investment. If you’re working with Paul, he’ll take a look at the business plan for you.
By taking a careful approach, you can protect yourself and your family’s future.
How Are Personal Injury Settlements Paid Out?
Personal injury settlements get paid out in either a lump sum or a series of payments. But before you get access to your settlement, it goes through a process.
Do You Have to Pay Medical Bills Out of Your Personal Injury Settlement?
Your health insurance probably didn’t cover all of the medical expenses related to your injury. In many cases, your lawyer will work with medical providers and other third parties to cover current bills with “liens” or debts to be paid out from your future settlement.
Once your settlement is finalized, you sign the release form, the person responsible for your injuries (or their insurance company) writes a check, and your lawyer deposits the settlement. At this point, your attorney will negotiate and pay any outstanding debts from your settlement to healthcare providers, private insurance carriers, or government health insurance programs.
This process can take some time to go back and forth to handle completely.
Personal Injury Settlement Disbursement
Once all of the outstanding debts and legal fees are taken out of your settlement payment, you get your money. Many personal injury and wrongful death payouts are tax-free while employment payouts compensating for lost wages are taxable as income.
If you choose a lump sum payout for your settlement, you can expect to receive your money within six weeks to a few months. If you choose a structured settlement, you work with a broker like Paul to find the best payment schedule based on your budget and money management needs. Your structured settlement could include the following terms:
- Monthly, quarterly, or yearly payments (or a combination)
- Intentionally setting the payments to increase over time
- Starting out high then gradually decreasing payments
- Periodic or one-time lump sums to help with necessities or cost increases
Paul is a structured settlement advisor and a financial planner – two perspectives that are critical to this process. For example, when you look at the greater picture, you can settle your structure so that you avoid losing your eligibility for state benefits.
When structuring your settlement and making a financial plan for you, your advisor should ask:
- Do you have a spouse, children, or other family members you support?
- What are your short, medium, and long-term goals, both financially and personally?
- What level of risk are you comfortable with when investing your money?
The answers will vary based on how old you are and where you are in your life. The important part is tailoring your financial payout to your unique situation and needs.
A structured settlement created with the help of a financial advisor you trust can make a world of difference in how long your settlement payout lasts. Not only can you protect your wealth but you can invest in a way that gets you better returns and managed risk. That could mean putting your money in a secure, steadily growing fund in the market. You could balance and diversify your portfolio with holdings in real estate, stocks, and bonds.
Listen to the full episode as we delve more into this topic with Paul here. Follow the Beyond the Bar podcast for more discussions with experts on relevant legal topics.