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When a civil lawsuit reaches a conclusion, there is occasionally an award of damages and/or court costs and attorney’s fees to the plaintiff. Sometimes the defendant also receives compensation for court costs and fees if they prevail. These amounts are paid under what is called a judgment.

Money damages in court cases can often be considerable, running well into the thousands or sometimes millions of dollars. Most defendants are unable to pay such large amounts all at once, so the structured settlement was invented.

How Does It Work?

If a defendant is ordered to pay a judgment of one million dollars, the court might be persuaded to allow the judgment to be “structured” into a legally mandated series of smaller payments, much like an installment loan. The plaintiff would then be granted the entire sum, but would only be able to enforce it one payment at a time.

The reason structured settlements are popular is because they are conducted under the jurisdiction of the court, so if the defendant refuses to pay, the plaintiff has immediate recourse to the court that issued the original judgment.

Why Is It Better?

A plaintiff holding a judgment for a million dollars might find itself in a difficult situation. If a plaintiff is able to seize a portion of the judgment, say one hundred thousand of the million dollars, they must often return to court to file notice only a portion of the judgment remains. Otherwise, it can create a situation where some of the money has been paid, but the plaintiff still holds a court order to collect the entire amount.

This can end up being a process very much like a structured settlement, except the plaintiff ends up doing all the work. If the settlement is structured in advance for some annuity cash payout, then the defendant at least shares some of the effort and helps the court administrate the judgment and collection process in a fair and transparent way.

Structured Settlement as Asset

Some law firms and finance companies will allow a plaintiff to surrender their structured settlement in exchange for a one time payment. The amount paid to the plaintiff is less than the total amount of the settlement, but they are able to acquire the entire amount all at once. This is similar to the process of cashing in an insurance policy or annuity.

This is another reason structured settlements are popular, because they are secure enough to be considered collateral for a fairly large risk on the part of the company that assumes them.

Every defendant’s situation is different, but structured settlements are a good way to avoid the often confusing and frustrating process of trying to pay or collect a large judgment. As always, competent and experienced legal counsel is recommended before making any decisions in civil litigation.