When a plaintiff settles a legal case for a large sum of money, a financial planner may be consulted.  It may be advised that the legal settlement be paid in installments over time rather that in one large lump sum.  When legal settlements are paid in this manner it is considered to be a “structured settlement”.  Often these installment payment plans are made with the purchase of one or more annuities.   Annuities are sold by insurance companies and they are guarantees for future payments.  The idea of buying into the annuity was meant to benefit vulnerable victims, such as children, the elderly and people with  disabilities. It was meant to help  meet future medical expenses and basic living needs of victims unable to care for themselves.

An annuity can be flexible and the parties involved can usually choose how often they want the money distributed.  It can be in annual payouts over several years or periodic lump sums every few years.

In the early 1990s, financial companies began to purchase structured settlements rights from payees to collect future payments. These companies, known as “factoring companies” used powerful advertising to persuade payees to trade their future payments for present cash.  Many of these schemes were exploiting unsuspecting victims and created a great deal of legal controversy.  Before long, state legislatures saw a need for regulation.  In one lawsuit it was found  that “factoring companies often charged sharp discounts to payees who were ill equipped to appreciate the value of their future payments and in some cases, factoring companies charged discounts equivalent to annual interest rates as high as 70 percent.” (Wentworth S.S.C vs Jones, Jefferson City, KY 1998)

California Structured Settlement Protection Law

The California Insurance Code § 10139.5 is a statute that describes the process of court approval during the transfer of structured settlements. The California Insurance Code- Section 10139.5(a) states:

(a) A direct or indirect transfer of structured settlement payment rights is not effective and a structured settlement obligor or annuity issuer is not required to make any payment directly or indirectly to any transferee of structured settlement payment rights unless the transfer has been approved in advance in a final court order based on express written findings by the court that:

(1) The transfer is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents.

(2) The payee has been advised in writing by the transferee to seek independent professional advice regarding the transfer and has either received that advice or knowingly waived that advice in writing.

(3) The transferee has provided the payee with a disclosure form that complies with Section 10136 and the transfer agreement complies with Sections 10136 and 10138.

(4) The transfer does not contravene any applicable statute or the order of any court or other government authority.

(5) The payee reasonably understands the terms of the transfer agreement, including the terms set forth in the disclosure statement required by Section 10136.

(6) The payee reasonably understands and does not wish to exercise the payee’s right to cancel the transfer agreement.

In summary, you cannot sell your structured settlement without court approval.  You need professional advice as to whether the transfer is fair. The company buying your structured settlement will pay the attorney fees for this unbiased independent professional advice. You will agree that you fully understand the agreement and you will not cancel the transfer.

If you have any questions or concerns about a structured settlement payout, please contact our office today at 877-603-8473.  Mr. Peter S. Cameron is an experienced San Diego Civil Litigation Attorney and will help you understand your legal rights and options.