If you won money in a lawsuit, it’s important to understand your options, as the way you receive your money will impact your taxes.

Along with remembering that you are liable for whatever tax obligations your settlement brings, you’ll want to keep your money-spending habits in mind.

There’s more than one option for how you can choose to have your settlement paid out, and it’s important to research all of them before making a final decision.

How are settlements paid out? Keep reading to find out.

How Are Settlements Paid Out?

There are two different ways that money can be paid out when awarded in a lawsuit.

They can either be paid out in a lump sum, which is one single payment. Or, they can be paid out in periodic payments, which is known as a structured settlement.

Lump-Sum Settlements

While there are other options available, civil cases are usually paid as a lump sum.

If you choose a lump-sum settlement, it’s important to remember that you are responsible for paying any taxes necessary if you choose to invest the money. While a lump sum may be beneficial for paying off debt, or anything you need a large amount of money for at once, they don’t offer future security.

Structured Settlements

If you’re looking to have future financial stability, structured settlements may be the best option for you.

There is actually quite a bit of flexibility in receiving a structured settlement. The payout process can be determined by a professional structured settlement broker in a way that meets the needs of you and your family.

When it comes to deciding when the settlement will be paid out, that’s something you’ll determine with your broker. If you need the money immediately for things like home bills, hospital bills, or car payments and you’re unable to work, you could start the payout sooner.

If you know that later on down the road you’ll have expenses you need help with and you can bring in money, you can choose when the payments will start.

Terms You Should Know

If you’re receiving money in a lawsuit, there are some terms you’re going to want to know and remember.

  • Payment schedule: Decide if you want your structured settlement monthly, quarterly, or annually.
  • Increasing payments: Structured settlements can be paid out in ever-larger amounts.
  • Decreasing payments: Payments may start high but decrease over time.
  • Periodic lump sums: Regular payments combined with some larger payments.
  • Initial lump sum: Comes immediately after the settlement is agreed on.
  • Final lump sum: One large payment at the end of the payout process. Typically given to a minor at the age of 18.

How Are You Going to Receive Your Settlement?

Earning money in a lawsuit is a relief, however, understanding your options is essential for using it wisely.

How are settlements paid out? Now you know the answer. You can make the best decision about what to do with your new money!

For more content on finances, check out our Money section.