We will explore the advantages and potential disadvantages of structured settlements below.
We mention it here because one of the biggest questions people commonly ask about structured settlements is whether they can change the terms of their agreement at a later date.
The short answer to this is no; you can’t. However, that does not mean you do not have options should:
- Your circumstances might change, and a structured settlement is no longer suitable, or you would prefer the liquidity of receiving a lump sum.
- You decide that taking the structured settlement was a mistake and you now prefer to have received a lump sum.
If you’re in either of these situations, you might be able to sell your structured settlement, typically to a factoring company that buys structured settlement payments. There is a process involve in doing this and we will explore this process in later sections
You might be able to sell:
- Some of your future payments. Generally, this means you get money today in a lump sum in exchange for the future payments but now you will no longer receive the settlement payments in the future.
- A portion of future payments, meaning you receive a lump sum now, and then (instead of receiving the larger amount due under the structured settlement) you will receive smaller amounts for the remainder of the terms of settlement.
- Your entire structured settlement. In this situation you sell your entire structured settlement, get a lump sum and no longer receive any payments under the structured settlement.
→ Which option is best for you is a decision you should make carefully and is very dependent on your life circumstances
→ It is also important to know the large the structured settlement you receive the more options you will have.
To sell a structured settlement, you must acquire court approval. Going through the court approval process may involve explaining your reasons for looking to sell your settlement and what you intend to do with the lump sum you will receive. This is true regardless where you live in the United States. In every state you must get court approval by a Judge that finds selling your payments is in your best interest.
One of the purposes of requiring court approval is to protect you. Part of the court approval process involves the judge checking you understand what you are selling, how much you are getting paid and that moving forward will be in the best interests of you and your dependents.
If a judge thinks selling is not in your best interests, they may turn down your request. Common reasons for declining requests include if it appears the lack of regular payments will lead to financial hardship once you have spent the lump sum.
When selling your structured settlement you should treat as if you it’s a negotiation! While you might not think there is room to negotiate how much the buyer will pay you for your future guaranteed or life contingent payments, you are wrong and the factoring company/buyer is very likely able to offer more money than its initial offer.
To this end, a structured settlement buyer may increase its offer by a very large percentage once you start negotiating or if you bring an offer from another company structured settlement buyers. There is no generally rule when it comes to how much of a lump sum you will receive relative the aggregate of the payments you are selling. This is because factors such as the timing (when the payments are due), if the payments are guaranteed or life contingent and the amount of the payment, will impact how much a company could and will offer. You can assume that the lump sum you will be offered will range from 10% – 85% of the aggregate of the remaining payments you are selling. Often times it is better to look at the “effective rate” of the transaction when evaluating the offer you are receiving. You should always consider alternative ways to raise the money you need before you agree to sell your structured settlement.